Shutterstock, Inc. (SSTK) Q2 2022 Earnings Call Transcript

Shutterstock, Inc. (NYSE: SSTK) Q2 2022 earnings call dated Jul. 26, 2022

Corporate Participants:

Chris Suh — Investor Relations

Paul Hennessy — Chief Executive Officer

Jarrod Yahes — Chief Financial Officer

Analysts:

Bernie McTernan — Needham & Co. — Analyst

Andrew Boone — JMP Securities — Analyst

Youssef Squali — Truist — Analyst

Nat Schindler — Bank of America — Analyst

Presentation:

Operator

Good day, and welcome to the Q2 2022 Shutterstock, Inc. Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker, Mr. Chris Suh, Vice President, Investor Relations, and Corporate Development. Please go ahead.

Chris Suh — Investor Relations

Thanks, Suri [Phonetic]. Good morning, everyone, and thank you for joining us for Shutterstock’s second quarter 2022 earnings call. Joining us today is Paul Hennessy, Shutterstock’s Chief Executive Officer; and Jarrod Yahes, Shutterstock’s Chief Financial Officer.

Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements including without limitation, the long-term effects of investments in our business, the future success and financial impact of new and existing product offerings, our ability to consummate acquisitions and integrate the businesses we have acquired or may acquire into our existing operations, our future growth, margins and profitability, our long-term strategy and our performance targets, including 2022 guidance.

Actual results or trends could differ materially from our forecast. For more information, please refer to today’s press release and the reports we file with the SEC from time to time, including the risk factors discussed in our most recently filed Form 10-K for discussions of important risk factors that could cause actual results to differ materially from any forward-looking statements we may make on this call.

We will be discussing certain non-GAAP financial measures today, including adjusted EBITDA and adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share, revenue growth, including by distribution channel on a constant currency basis, billings and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the financial tables included with today’s press release and in our 10-Q.

I’d now like to turn the call over to Paul Hennessy, Chief Executive Officer.

Paul Hennessy — Chief Executive Officer

Thanks, Chris. Good morning, everyone, and welcome to our second quarter earnings call. I’d first like to start by conveying my gratitude to my fellow colleagues at Shutterstock for helping me get immersed in the business so quickly and seamlessly. As many of you are aware, I’m now approaching the end of my first month as Shutterstock’s CEO. I find myself energized by the passion and bias for action permeating throughout the organization and the opportunity to serve our customers. I also look forward to engaging with those of you in the investor community in the weeks and months ahead.

I spent the past several weeks exploring in depth many of the key assets and capabilities unique to Shutterstock that allow us to maintain our leadership position in the industry and best serve our customers, contributors, employees, and shareholders. I would like to speak to each of these key assets and capabilities, and finally, provide an early indication of some of the strategic priorities I feel may be untapped opportunities for Shutterstock in the years ahead.

The key assets and capabilities that make Shutterstock so unique include the leading content marketplace with superior depth and breadth across all categories, our recently introduced Creative Flow platform, a unique offering of content, data, and production solutions to large enterprises and small and medium-sized businesses, and an extremely talented team able to execute on the range of exciting opportunities that lie ahead.

The bedrock of Shutterstock has always been our content marketplace with industry-leading depth and breadth across content hubs. We have invested heavily in our content and technology stack both organically and via acquisitions and we’ll continue to do so. For example, over the past several years, we’ve acquired the world’s largest 3D model marketplace in TurboSquid, the world’s largest video first marketplace in Pond5, and we’ve been adding to our editorial and exclusive content most recently with the acquisition of Splash News.

As a result of these investments, we have massive industry-leading scale and it become the de facto primary destination for marketers, creators and professionals to come for their content needs for a range of use cases. Our marketplace is particularly well positioned to thrive in rapidly evolving environments, such as the Metaverse with our 3D model, and recently added Metaverse ready sound effects content.

To put things in perspective, on our marketplace, 2.1 million customers purchase content from a community of 2.2 million contributors. That’s a contributor base that is larger than our nearest competitor by 4x. What this means in real terms is that we have the freshest content from around the world with 5 million to 10 million assets being added every single quarter. Our content library is by far the largest and deepest by a significant margin with 484 million creative and editorial images. In video, we are larger than the next player by a factor of 2x, including Pond5, and we have more 3D models on our marketplace than any other competitor.

In addition to scale, ease of content discoverability and a robust ingestion process further differentiate our marketplace from the competition. In short, from a customer perspective as a result of Shutterstock’s extensive growing library and ability to surface the right content, it means that Shutterstock is the go-to destination for your content needs whether, for example, you’re creative professional, a small business owner or a marketing profession.

In order to all our customers to more fully leverage our content, Shutterstock is gradually transform our content marketplace into an end-to-end, full service creative platform. We commenced that journey with significant organic and inorganic investment in our workflow applications and data culminating in the initial rollout of the Creative Flow platform release to our customers in the second quarter.

We believe the customers will further benefit from the enhancements planned to the Creative Flow over the next several quarters. We are truly just at the beginning stages of leveraging Creative Flow to enhance the way our customers do their creative work. We believe Creative Flow will ultimately result in stronger engagement with our platform and lead to customer satisfaction and retention across all channels.

We are all ready seeing strong customer engagement with the platform, with existing Shutterstock subscribers using the platform to create and customize their downloaded content. As we get more data about Creative Flow engagement and the downstream impacts on our business, we expect to provide additional insights and metrics to investors.

Creative Flow also opens up the potential for a larger total addressable market for template driven creative design tools thereby allowing for audience expansion into the long tail of solopreneurs and casual creators creating a long runway for growth.

In summary, Shutterstock is well positioned to meet the various needs of customers in a more complete way by providing the connective tissue that helps our customers transform a piece of content into performance creative.

Shutterstock’s enterprise sales channel is another unique asset that has performed strongly, and will be key to our success going forward. We are seeing exceptional traction across a range of strategic solutions that we’re bringing to our customer base for large enterprise corporations as well as SMBs. Our sales force is truly global and we are able to deliver end-to-end creative solutions to customers on a scale that is unmatched by our competitors.

We’re seeing strong traction at Shutterstock Studios in creating short-form and long-form video for our customers as well as high interest in 3D engagements for brands. Our API platform solutions channel is seeing strong demand across content types for predictive data for scoring creative content and for computer vision applications used by large technology companies.

And last but not least, we have developed a strong muscle in our sales channel for end-to-end solution selling starting from our high-end differentiated creative content to our editorial offerings and sports and entertainment and news including the Shutterstock archive real-time splash newsroom subscriptions to highly sophisticated global production services.

I’d like to provide a few highlights that show how all of the above is manifesting in our enterprise business. Our Studios business is increasingly winning large global deals with customers across industries by pharmaceutical and CPG with ALVs that are three times greater than last year.

We’re also proud of our studios’ work with Alvogen Aesthetics [Phonetic] which commenced in Q1. Through this partnership Shutterstock is continuing its commitments to improve diversity. The partnership will cast 100s of real people in an effort to produce 1000s of powerful and inclusive royalty free images which will be hosted in a curated collection on the Shutterstock website later this year making our marketplace increasingly reflective of the diverse world in which we live.

Leading Autotech brand Carvana enlisted Shutterstock Studios to produce an original Docuseries capturing the life and career of Jimmie Johnson, one of the greatest race car drivers of all time which is currently airing on NBC Sports. Having launched a virtual production offering we’re seeing continued growth and the appetite for AR, VR and Metaverse activations for brands and agencies.

We are experiencing healthy growth in the SMB segment driven by new customer acquisition, upsell and continued sales momentum with our Flex product franchise. Overall, our average revenue per customer in our enterprise channel is 20 times greater than that of our e-commerce channel, as we increase wallet size and increase customers and tap into new relationships that are more strategic in nature.

In summary, we see a path to sustained growth with our enterprise customers with the right investments in product and services and innovation, strategic account focus and execution strength.

Lastly, as I referenced earlier, I’m impressed by the passion of my fellow Shutterstock colleagues across the company by ensuring that we as a team are aligned on our mission, encouraging high levels of engagement and collaboration and continuing our investments in world-class talent. I believe that we will be well positioned to grow the business across our e-commerce and enterprise sales channel.

Beyond the unique assets and capabilities at Shutterstock, I’d also like to share an early look into some high potential growth and investment opportunities based on my observation so far. Looking forward, I see a range of exciting opportunity to improve our business performance and ultimately accelerate growth.

While I’ll touch on these opportunities on today’s call, investors should expect to hear more detail in the quarters to come as we turn our strategy into initiatives and outcomes.

Firstly, my enthusiasm for the opportunity in front of us in the enterprise segment should have come across loud and clear. We have the right team and the right solution set and now is the time to extend our enviable position by investing for growth. In order to fuel that growth we’re going to need to ensure that our customers are finding the perfect content they’re looking for at Shutterstock every single time.

Ultimately, world-class content is the lifeblood of Shutterstock’s business and the reason why we are the dominant player in the market. In the past quarter, we closed on two transactions to further content-led innovation and growth. Pond5 is the world’s largest video-first content marketplace with a diverse customer base, strong brand affinity with filmmakers and media companies and differentiated royalty-free, creative, editorial and exclusive content.

The acquisition adds further scale to Shutterstock’s video business which now represents approximately 20% of total revenue on a combined basis and offers a differentiated video collection and premium editorial partners such as Reuters, British Movietone and British Film Institute.

Splash News further bolsters our editorial business with its archival entertainment and celebrity content library consisting of over 27 million images. Its network of 4000 photographers and is contributor and customer-facing technology platform. It is a highly complementary addition to our newsroom offering where we offer real time news and entertainment content from our network.

Beyond integrating these two valuable acquisitions into our offering and the strong revenue synergy potential they offer, I strongly believe there is an opportunity to extend our lead by leveraging content as a key differentiator of our marketplace delivering to our customers and enabling us to drive faster growth.

To give you a sense in more specific terms of what this means for Shutterstock in the years to come we’ll be focused on one, making our content catalog smarter and more dynamic allowing for greater discoverability and relevance for specific market segments, audiences and use cases. Two, enhancing the quality and the unique nature of the metadata that supports our content discovery and predictive performance algorithms. Three, leveraging Shutterstock Studios to create bespoke on brand video or 3D content for our enterprise customers.

Four, adding scale in new or emerging content type such as Metaverse ready assets as well as content that represents a highly refined finished product for users such as industry or use case specific templates, and finally garnering exclusive access to some of the most talented creators globally further reinforcing the competitive moat around our business.

Taken together differentiated and compelling content is part of the flywheel that attracts more customers and more contributors to Shutterstock. As we invest for the future, we’ll be mindful of the framework that we’ve communicated for shareholder value creation. With our strong cash flow generation profile we believe we will consistently return capital through execution of our M&A strategy, dividends and share repurchases.

We will invest in avenues to accelerate revenue growth with an eye on cash generation and long-term margin improvement. We will continue with our M&A strategy allowing us to acquire businesses that adds to our capabilities strategically and match our returns criteria.

In conclusion, as I mentioned at the top of the call, we have the right combination of assets and capabilities to achieve our vision for Shutterstock. The broad strategy is in place, and I’ll be spending in the coming weeks and months ensuring that we’re on the right path to improved growth in our business through our world-class execution in areas such as customer acquisition and marketing in our e-commerce channel and further investing in our enterprise channel to power the next leg of innovation led revenue growth.

We will also be relying on data driven tests and experiments to help learn, iterate and adjust our strategy we are warranted. I look forward to updating you in the quarters ahead.

And with that, I’ll hand the call over to Jarrod to discuss our financial performance and guidance.

Jarrod Yahes — Chief Financial Officer

Thank you, Paul. Good morning, everyone. Revenues grew 9% in the second quarter, where 13% on a constant currency basis. Revenues for both our e-commerce and enterprise channels benefit of this quarter from the addition of Pond5, which we closed on May 11, which added 3.5% to our overall revenue growth based on 1.5 month’s contribution of the business.

Therefore our constant currency growth in the second quarter excluding Pond5 is just above 9% for the quarter. E-commerce revenues grew 6% on a reported basis aided by our acquisition Pond5 and grew 9% on a constant currency basis this quarter.

Excluding the impact of Pond5 e-commerce revenue grew 2% and 6% on a constant currency basis. Based on our year-to-date results the return to strong growth in our e-commerce channel is taking longer than we initially expected and we attribute that to three drivers, notably weakness in Europe, compounded by FX pressure and the roll-off of the Russia business. Ongoing product mix shift towards subscription products with higher LTV, but with lower ALVs and weakness in new customer acquisition.

We are focused on reaccelerating growth momentum in our e-commerce channel by refining our customer acquisition strategy and also by driving engagement with our Creative Flow platform that we believe will have a positive impact on retention over time. We made strong progress with our product rollouts in the second quarter in e-commerce.

We just recently rolled out the Creative Flow capabilities to our e-commerce subscription customers at the end of the second quarter. And just last week we unveiled the standalone Creative Flow Plus subscription for $12.99 per month. This is a new price point and the tools first offering for Shutterstock.

We look forward to marketing our Creative Flow capabilities to our customers and showcasing our enhanced value proposition. We expect the positive impact of Creative Flow to both customer engagement and customer attention to take place gradually over the coming quarters and we look forward to measuring the results and reporting them out to investors.

Meanwhile, we’re seeing solid continued momentum within our enterprise channel. Enterprise grew 15% or 19% on a constant currency basis driven by strength with small and medium-sized business and enterprise customers. We’re also experiencing strong demand for Shutterstock Studios and editorial content and services.

Editorial was bolstered by both traction in our newsroom offering supported by our recently announced acquisition of Splash News. We see momentum in both our Studios and Platform solutions offerings driven by new customer acquisition and higher ALVs. The Pond5 acquisition added 4% of growth in the quarter to the enterprise revenue channel.

For the second quarter reported gross margin declined by approximately 155 basis points year-over-year largely driven by higher non-cash M&A amortization expense of $5.9 million. Excluding M&A amortization Q2 gross margin improved by 130 basis points year-over-year to 65.6% driven by the ongoing mix shift towards higher margin subscription offerings.

Sales and marketing expense was 26% of revenue as compared to 24% in the second quarter of 2021. The year-over-year increase was driven by our marketing presence at the Cannes Lions event where we showcased our 3D content and capabilities, along with additional sales headcount to support the future growth of our enterprise channel. Product development as a percentage of revenue increased 8% in the second quarter compared to 6% in the second quarter of 2021 driven by further investment in our product roadmap.

G&A expenses were 16% of revenue consistent with the second quarter of 2021 however they included $3.9 million of transaction expenses associated with the Pond5 and Splash acquisitions offset by lower non-cash compensation expense. Excluding transaction expenses associated with mergers and acquisitions and non-cash compensation expense G&A was 13% of revenues evidencing the operating leverage we are experiencing. Adjusted EBITDA margins were 23.7% down 400 basis points from last year driven by additional spend in sales and marketing and the $3.9 million of M&A transaction expenses previously mentioned.

Adjusted for the transaction expenses, adjusted EBITDA margins were 25.5% for the second quarter. Year-to-date our adjusted EBITDA margins are 25.6% and above the high end of our margin guidance even inclusive of the transaction expenses we included in the EBITDA associated with M&A.

For the second quarter GAAP diluted earnings per share was $0.53 and adjusted diluted earnings per share was $0.83. Turning to our balance sheet and cash flows. At the end of the quarter, we had $84 million of cash as a result of our acquisitions of Pond5 for $210 million and Splash News for $6 million in the quarter.

In connection with the Pond5 acquisition we also drew down $50 million on our revolver. Depending on further acquisitions this year, we may elect to pay down the revolver in the quarters to come. We sustained our share buyback program in the second quarter taking advantage of the weak market conditions and repurchased 286,700 shares for $18 million.

As a result our total shares outstanding decreased by 157,000 shares from the first quarter to 36 million shares at the end of the quarter and we’ve repurchased 57 million of shares year-to-date. Our deferred revenue balance was $178 million and increased $16 million from the second quarter of 2021 representing year-over-year growth of 10%.

Adjusting for the acquired deferred revenue from PicMonkey and Pond5 deferred revenue grew 2% year-over-year. Our deferred revenue balance was unfavorably impacted by FX as current bookings are converted to dollars at the lower foreign exchange conversion rates. On our key operating metrics for the quarter subscriber count increased by 15%, subscriber revenue increased by 8% and subscriber revenue represented 41% of revenues down from 43% in the previous quarter.

The addition of Pond5’s revenue which is a non-subscription business accounted for the entirety of the decline in subscription revenue as a percentage of total revenues. Average revenue per customer increased by 1% on both a year-over-year and sequential basis. Paid downloads were down 3.3% and revenue per download increased to $4.46 per download.

Turning to our guidance for the full year, we are maintaining our 2022 guidance of 8% to 10% revenue growth with margins flat to up 50 basis points compared to last year. There are multiple factors that taken together have us maintaining our guidance forecast for the full year.

For example, with respect to currency the euro and pound represent approximately 27% of Shutterstock’s revenues and both currencies have depreciated by 10% to 12% year-to-date. At current spot rates this depreciation represents a 4% headwind to our full-year revenues and a substantial increase compared to the 2% headwind we forecast based on spot rates at the beginning of the year.

As such, we now estimate that FX will be approximately a $30 million to headwind into revenues this year assuming current spot rates carry forward for the remainder of the year and we are fully factoring that into our guidance. We’re also factoring in an additional 1% or $8 million reduction in revenues from Russia were $38 million in total. The estimated contribution of Pond5 add approximately $4 million of revenue per month will somewhat offset this impact as the ongoing strong performance we are seeing in our enterprise channel.

Based on the current macroeconomic uncertainty we are not assuming in our guidance any acceleration of growth rates in the back half of the year in the e-commerce or enterprise. We are factoring in a continuation of the current softness with no significant changes in customer spend behavior on content and digital marketing.

In conclusion, we remain focused on continuing our evolution into a creative platform by integrating tools, workflow and data applications into a leading content marketplace. We’re making strong progress on integrating our recently announced acquisitions and we are investing for long-term growth despite the current macro uncertainties while delivering on our stated targets for 8% to 10% revenue growth combined with annual margin expansion in 2022.

And with that operator, we’d now like to open the call for any questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from Bernie McTernan with Needham & Co. Please go ahead.

Bernie McTernan — Needham & Co. — Analyst

Great. Good morning. Thanks for taking the questions. Maybe to start for Paul in your prepared remarks, you spoke about the importance of content being the moat for the company. If you could just maybe dive in what gives you confidence that content-backed mode and how is the competition — there be other stock operating peers, free options, or AIB offerings?

Paul Hennessy — Chief Executive Officer

Great. Yeah, thanks for the question, Bernie. It’s simple the way I look at it. We’ve got to be the leading position in contributors, the leading position in content acquisition. We’ve done some acquisitions to further bolster our position in content and we understand that getting the right content and putting in front of our customers, so that they can actually convert better drives the flywheel forward.

So what we see is when — as we amass these assets it ultimately drives conversion and then what I’d say is, and then when you add Creative Flow tool to help our customers further engage with that content, that engagement increases. So again, you get this very, very positive flywheel of content driving conversion, tools driving engagement with content and then that’s driving underlying growth. So that’s really how we think about it.

Bernie McTernan — Needham & Co. — Analyst

Yeah, it makes a lot of sense. And for Jarrod, you called $38 million of headwind guide for in total for FX in Russia and then Pond5 probably having $28 million of revenue this year. So is that why the core business is doing better than expected relative to what the prior guide or any other moving pieces that we are thinking about?

Jarrod Yahes — Chief Financial Officer

Bernie, look, I think it’s a little bit of a tale of two cities. I mean if you look at the numbers and you look at what’s going on in enterprise, I mean this is really a tremendous performance. Get the sales team that’s executing strongly and firing on all cylinders. It’s the SMB business that is growing rapidly on the back of some of the Flex family of solutions that we introduced in the middle of last year.

And we’re doing up the nominal job of selling through exclusive and editorial content as well as seeing a lot of success with our large enterprise clients with our Studios offering. So I think from Paul and I perspective, we couldn’t be more pleased about what we’re seeing in enterprise both year-to-date, as well as our prospects for the remainder of the year.

And that does give us confidence in our guidance and I think at this point in time, it’s fair to say we’ve seen some great outperformance across sort of multiple aspects of our enterprise business. On the e-commerce side I think getting back to strong growth is clearly taking longer than we would like. We sort of peel back the onion for investors and gave folks a peak and we’d like to be at mid to high single-digit revenue growth on inorganic reported basis at this point in time, and we’re just not there.

And so I think we’re very focused on that. We’re focused on new customer acquisition. We’re focused on isolating some of the geographic impacts. One of the things I would call out Bernie is if you look at the growth by geo you can see some of the weakness in Europe. And you can also see some of the strength that we’re seeing in North America in the US. And so we’re going to play to those strengths and continue to focus on our reinvigorating the growth in e-commerce, while taking advantage of the successes that we’re seeing in enterprise.

Bernie McTernan — Needham & Co. — Analyst

Got it. And then just lastly for me, margins were lower than we and I think the rest of the Street were expecting in the quarter, but reiterate the guidance for the year — think that we should think about in terms of that maybe there was elevated investment levels in the quarter or think about margins in the second half of the year?

Jarrod Yahes — Chief Financial Officer

Yeah so, Bernie the thing we probably should have put this out in our public release but what we called out was $3.9 million of transaction expenses in the quarter itself. If you back that out, we would have been above 25.5% margins for the quarter and our year-to-date margins even including that $3.9 million one-time transaction expense are above the top end of the year-to-date of the guidance.

So it really is kind of that one-time transaction fee and this is sort of lawyer fees and banker fees associated with our deals. So we feel good about the guidance. We feel good about the margins, and if you look at our business where we were really up in terms of year-over-year cost was in the sales and marketing line and we made a big splash at our Cannes Lions this year, we had a tremendous presence with our 3D offering and we really feel like that made a lot of headway towards elevating the brand and moving us in the right direction in the hearts and minds of our enterprise customers with whom we’re seeing a lot of success with today.

Bernie McTernan — Needham & Co. — Analyst

Understood. Thank you for the color.

Operator

Thank you, and one moment for our next question. Our next question will come from Andrew Boone with JMP Securities. Please go ahead.

Andrew Boone — JMP Securities — Analyst

Good morning, and thanks for taking my questions. Can we parse, I guess Bernie’s question a little differently. Can you guys talk about the various underlying customer segments and just where there may be strength or weaknesses across consumers, SMBs, agencies on maybe more of the end market that you guys serve?

Jarrod Yahes — Chief Financial Officer

Andrew we have, if you kind of take a step back and look at Shutterstock historically, we’ve been a marketplace that has serve the needs of professional creators, whether they be enterprise marketers, whether they be creatives that are working for businesses and that’s really been sort of the bedrock of our audience focus and where we really have a tremendous amount of brand recognition and notoriety in the market. And that we expect will continue to be there and you can see some of that today with the tremendous success that we’re seeing in enterprise.

We have continued to focus on SMB as an opportunity for growth within enterprise and that is both companies that are small businesses, so I think 5 to 20 employees all we have to medium-sized businesses that can be 200 to 500 employees and again, tremendous amount of success that we’ve seen in the market. And when you look at our 2.2 million customers that’s really the bedrock of whom we are selling to.

The opportunity that we sort of identified a couple of years ago that we’ve been capitalizing on and we have plans to further capitalize on is this idea that anyone can be a creative in the marketplace and we started that journey by initially launching smaller subscriptions. So if you think back to 2020 we started focusing very heavily on our 10 image per month subscription. We introduced two small video subscriptions of 5 clip per month and a 10 clip per month video subscription and we also unveiled two new music subscriptions, a PremiumBeat subscription and an Unlimited Shutterstock music subscription really to cater towards the needs of some of these small business owners who may not be professional creative and so sometimes, they’re referred to as solopreneurs or they may be referred to as casual creatives.

The next big play into that audience is really what we are executing on today which is with the launch of Creative Flow, but also the launch of Creative Flow Plus which is the $12.99 tools first template driven design tools subscription that we just launched. You’d be well aware of some of the competition in this space. There’s two large players that have really created a large runway design tool subscription that we just launched. You’d be well aware of some of the competition in this space. There’s two large players that have really created a large runway for growth and we feel like this is a tremendous untapped opportunity for us to tap into a group of people who are not professional designers, but there is a very long tail of these potential customers.

And we feel like that’s going to create a tremendous runway for growth. We feel that these people may eventually become professional creators and so we’ll have the ability to grow with them as their content needs grow. So this is both an audience acquisition strategy for us to expand the TAM as well as we believe our attention strategy as we grow with these clients may become professional creatives from the casual creatives, that we are today. So that’s broadly speaking how we’re thinking about where we were vis-a-vis the audience segmentation kind of where we are and where we’re, where we’re going.

Andrew Boone — JMP Securities — Analyst

That’s helpful, thanks. And then secondly on Splash, you guys are now clearly more established with editorial. Can you talk about the future and editorial and how you’re leveraging just a larger editorial base? And what that looks like over the next couple of years? Thanks so much, guys.

Paul Hennessy — Chief Executive Officer

Yeah, maybe I’ll take that one. We are absolutely committed to the editorial space and whether that’s acquisitions, like Splash bolstering our team to be deeper and more engaged in the editorial side of our business or just even acquiring exclusive content to further bolster that area like we’ve done of late. I think that’s just a critical leg of our strategic tool to balance out not only all that we’ve talked about on content and all of the customer segments that Jarrod talked about but by providing the position of Shutterstock to be the place for content and by elevating our brand from what was maybe a position of leader in just stock photo. So now a leader in all things content and tools for creatives we become the one-stop shop as a full end-to-end, full service creative platform and editorial is a big part of that.

Jarrod Yahes — Chief Financial Officer

Yeah, I think those are great points and there clearly is for us a competitive opportunity to really take share in editorial and two things I would call out which I’m not sure people fully recognized, but Pond5 had a strong editorial video presence. So we did not prior to Pond5 have a presence in editorial video. With Pond5, we do now have that presence and editorial video is a tremendous opportunity. The other pieces the way we have gone to market with editorial previously was what you would think of as a buy activity approach.

So customers would come then identifying individual asset that they want to acquire and then they would pay us for that asset and we would share that with the publisher. There is a tremendous opportunity in editorial subscriptions where customers engage with us on a more recurring basis in recognition of the exclusive editorial content that we have available. With our archive growing the way it is with our existing editorial presence with the Splash newsroom offering, Splash gives us that opportunity to sell editorial subscriptions. We did not have that capability in our platform previously and the technology platform that Splash brings us that ability to sell editorial subscriptions, which in and of itself when you combine that with editorial video this is a tremendous opportunity for us. There is a long runway for us and while this is not huge as a percentage of our revenue. This is clearly an area where we see a competitive opportunity for us to approach.

Andrew Boone — JMP Securities — Analyst

Thanks, guys.

Operator

Thank you. One moment for our next question. That will come from the line of Youssef Squali with Truist. Please go ahead.

Youssef Squali — Truist — Analyst

Great, thank you. Good morning, everyone. So a couple of questions from me. Maybe starting with you, Paul, and obviously on the new — so the CEO position may be new to you, but you’ve been on for many years. I was wondering if maybe you can share with us any meaningful kind of changes or any meaningful kind of differences you see in how we run Shutterstock versus your predecessor? And I guess related to that, I think in your prepared remarks — need to invest in growth. How do you see — expected improvement in margins that the company has kind of committed to delivering year in and year out? And I have a follow-up.

Paul Hennessy — Chief Executive Officer

Yeah, first let me start with I’ve worked for businesses that in the past required accelerated growth to get the unit economics required in those businesses and that just required rapid and aggressive scale. What I see here at Shutterstock is that I’ve inherited an incredible balance sheet in a business that kicks off cash earnings and strong margins.

And so I plan to continue that trend of growing our business profitably with over the long term expanding margins, might there be variability as we invest in near-term opportunities that expands the platform, expand our revenue growth, but ultimately lead to long-term EBITDA and EBITDA margin growth, certainly.

And so there is a lot of pattern recognition that I see from a variety of the industries that I bring to bear but Shutterstock is so well positioned because of its balance sheet and because of it both human capital and assets and all of the assets that I talked about on the call from contributors to the actual content to the marketplace itself to the new tools that we’re launching towards editorial framework and the scaling enterprise business, again there is a lot of opportunity for growth.

When I talked about investing for growth in our channels we’re going to obviously make sure that our core continues to be healthy and in places where we see now new opportunities. Again, we talked a lot about enterprise, there are large scale customers that want what we have and we’re going to enable that and we’re going to enable fast because as we enable that quickly that widens and deepens our competitive moat. So that’s really what I mean. But we will be responsible stewards of our capital and the capital that we kick off from our business and again we’ll stay the course, in terms of delivering high value for our shareholders and long-term margin expansion.

Youssef Squali — Truist — Analyst

Okay. And then Jarrod if I look at sales and marketing for the first half of the year it showed some efficiency decline. I was wondering how much of that is just related to these new initiatives that you’ve talked about? How much maybe also related to competition, particularly as getting now has you know as public currency etc. What’s your expectations for the second half?

Jarrod Yahes — Chief Financial Officer

So our expectation for the second half is not too different from the performance that we’ve seen in the first half of the year with respect to our channels and with respect to our business performance. There is a lot of macro uncertainty out there. We are not factoring into our guidance sort of a rebound, if you will, or a come down in cost and efficiency with respect to sales and marketing in the back half of the year. Nothing like that needs to happen for us to meet or beat our numbers in the second half of the year.

This is an industry that is very competitive. This is an industry where prices are very well understood and well publicized by our customer base and so what is absolutely critical for us is to add underlying value to the content subscription. When you look at Creative Flow and you look at the value that we are now giving to a subscriber of Shutterstock where we’re giving them not only creation tools and bundling that into the content subscription but the ability to catalog assets, the ability to predict what assets are going to perform, the ability to calendarize and collaborate with their colleagues. We think that fundamentally we are improving the value prop and over time, that the better product market fit, which will lead to greater customer retention and have an impact on the growth of our business that is our play is really add value to the customer, and eventually the customer will add value to us as a business and so it is really early days, Youssef.

I mean we just rolled this out to our customers in the second quarter and we just rolled out the standalone creates literally last week. This is the culmination of a year and a half of work around the strategy and so we’re really excited to see the results, and we’re really excited to start marketing this. We really haven’t started to market this value proposition, this enhanced value proposition to our customers. So we think there’s a great opportunity in front of us to be able to do so.

Youssef Squali — Truist — Analyst

Okay. Okay, thank you, both.

Operator

[Operator Instructions] Our next question will come from Nat Schindler with Bank of America. Please go ahead.

Nat Schindler — Bank of America — Analyst

Yeah, I just wanted to see if you could walk through what has happened in the past in a possible ad recession affecting advertising with your business? And how your broadening of both your customer base and your media types will change how you are affected?

Jarrod Yahes — Chief Financial Officer

Sure. Nat, I’ll start and I think Paul will pull follow-up. I think from our experience has been sort of two periods of dislocation that have happened in the market. You can think about sort of the recession around the time of the mortgage crisis in 2008-2009 and more recently you can think about the pandemic on, in the first and second quarter of 2020 and both of those examples saw significant declines in economic activity and some dislocation in digital ad spend and in digital advertising.

Now if you track back to 2008-2009 Shutterstock was a smaller company at that point in time, a true disruptor in the industry and there were significant share gains that were taking place that were accruing to Shutterstock. So in that specific example, despite a recession Shutterstock was able to grow very, very strongly. So, I think you almost need to kind of push through that and kind of fast forward to the point in time where we are in $850 million leader as we are today. If you look to the first and second quarter of 2020 when economic activity really came to a standstill the business was down a 1.5% in each one of those quarters.

And so I think it did show a resiliency that existed and when you think about stock as a component of overall digital ad spend, keep in mind the vast majority of the economics accrue to the large platforms. And so when you think about a cut back on a particular campaign we don’t necessarily believe that stock is in the first place that cost out happens. And so let me turn it over to Paul to give his perspectives on how we would kind of react to some volatility in the market.

Paul Hennessy — Chief Executive Officer

Yeah. Thanks, Jarrod. The way that we think about it is this business has all of the dials and levers for us to be able to control our own destiny. We’ve got our hands on our marketing spend and so that’s ultimately quite variable and so we can manage that. We’ve got our hands on our hiring, which is obviously a large expense in our business and we can dial that in as appropriate depending on how long or if there is a particular ad recession or a recession broadly or globally and in the very nature of our business in the way that we pay our contributors and run our business is essentially on a revenue share basis.

And so we don’t have to prepay or get ahead of our skis in any kind of economic environment that could put our business in harm’s way. So one, we’re just going to be able to manage our business very well through even what could be a protracted, potentially protracted periods of time.

I think Jarrod talk well about, we’re not the first advertising cut to go right. We are critical to any level of creative. And so while media spends aggregate tonnage of media spends may shrink the underlying content that creates the media is what Shutterstock has to offer.

And then finally, what I’d say is if you track us over time going from predominantly photos to now music, video, 3D again an expanded sales force is now appealing to the largest companies in the world we differentiated our business, by the way, I’d add to that in content tools that allow our creators to better execute and engage with our content. All of that diversifies our platform, derisks our platform and takes away volatility that you might see in a business that could have been or was initially purely stock photo.

Nat Schindler — Bank of America — Analyst

Great, thank you.

Paul Hennessy — Chief Executive Officer

Thank you.

Operator

And I’m showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Paul Hennessy for any closing remarks.

Paul Hennessy — Chief Executive Officer

Great. Thanks all for joining us today. And I just like to thank all of our contributors, our customers and our employees, and look this ends our call for today. Thanks so much.

Operator

[Operator Closing Remarks]