Operator: Thank you. One moment please. Your next question comes from the line of Andrew Boone of JMP Securities. Your line is open.
Andrew Boone: Good morning, and thanks for taking my questions. I want to go back to Youssef’s last question on ecomm. Since generative AI is now just more widely spread, can you guys talk about ecommerce from kind of a top-of-funnel? Are you guys seeing any change in terms of the traffic that’s coming to the website, is there a change in conversion? Can you help just break down what you guys are seeing on the ecommerce front as there is just more availability in terms of being able to create images?
Paul Hennessy: Yes. As I mentioned in my opening remarks, we are just seeing an absolute surge in customers coming to engage in this new product and content type, and so the demand is high for creating images, and they are. You heard some of the, I think staggering data – not only are we seeing images created but we’re seeing accounts created. But I also mentioned that a big chunk of those, we believe are probably not likely to monetize. Call it half of the amount of traffic that’s coming in, in these early days are experimenting, they’re seeing what they can create. They’re understanding what this product is and how it might serve them. But when you have this level of new traffic, new accounts being created, customers on our website creating – literally creating – on our platform, we’re very optimistic that we’re going to figure out how to leverage this into either an important content management tool for them, you know, giving them the ability to edit images, create images, modify images.
We really see that–think of this as expanding on our creative tool set and creative flow, and we believe that there’s going to be a market where customers need, want and purchase the content that they create. What I don’t believe today is that our business is suffering in any way from the world suddenly creating these images off of the Shutterstock platform and using them in their advertising and in their creative needs, and we’re not getting that share of the market. We just simply don’t see that, and we believe most of the deficiency in ecommerce today is much more macro driven than AI generative image creation driven. But make no mistake, we understand the power of this, and we’re leaning in to make sure that we get it right for our customers – that spans pricing, productization of generative, and even in the way our customers engage with it, so we’re on the case, and that, by the way, fits very well with our strategy of getting out first, being the leader in this space, and learning from our customers so that we can give them exactly what they need and want.
Andrew Boone: That makes sense. Paul, I think you mentioned earlier the acceleration that you’re seeing in Studios. Can you talk a little bit more broadly about the success you’re seeing outside of data partnerships within enterprise? Is there any reason to think that this can–can you just talk about the momentum there and how you guys are continuing to drive that side of the business?
Paul Hennessy: Sure. Shutterstock suffered from, like, a wonderful problem – we were known as an image stock provider. What large companies are learning now is we do a whole lot more, and as you do a whole lot more, we move from hey, here’s some content that you can use in your creative to an aligned creative platform that can service multiple needs of the business. Studios is just one of those opportunities. We’ve talked a lot about data, and you can imagine with a level of innovation that Shutterstock brings to any business and the amount of content that we bring, we’re rolling up our sleeves and creating bespoke work on a variety of levels, and then that creates new work because those organizations within a company say hey, we want some of that too, we think we can leverage Shutterstock’s creative platform to grow our business, but then you see it across companies as well.
You get this both share of wallet phenomenon but also share of market, and that’s the beauty of having a full creative platform rather than just being a stock photo image provider.
Andrew Boone: Then I’ll try three as well – Jarrod, this is probably more for you. The high end of the revenue guide for ’23 didn’t really change. Is that just conservative? Is there any way to think about what is a beat, at least on our numbers, for 1Q than not flowing through to the top end of the guide for the rest of the year? Thanks so much, guys, appreciate the help here.
Jarrod Yahes: Sure Andrew. With respect to the revenues, our view is we have a part of our business that is not performing to its full potential. There’s a lot of work in progress to try and enhance that performance, and as and when we start to see either macro demand changes in various geos that are moving in the right direction consistently month on month, or when we start to see real monetization that’s flowing through from some of our generative efforts, I think that will give us confidence. We’ll see that in some of the ecommerce numbers, and I think that will be probably the trigger for us re-evaluating the revenue guidance. On the data partnership side, we couldn’t be any more pleased with how the pipeline’s been evolving and sort of how we’ve been performing this year.
I think we are very disciplined with respect to the deals that we’re entering into. Rather than having a pure merchant mentality, I think we’re approaching these with a pure strategic mentality. We’re being disciplined on price and we realize that we have something that is extremely valuable in the market today, and we’re pairing that with our other service offerings to deliver holistic solutions for clients, so we’re not looking at these as one-offs for data. We’re looking at these as comprehensive engagements that include content, data, services and solutions for our customers. I think to the extent we continue to execute in the way we have, with some of the two partnerships we signed this quarter plus the NVIDIA engagement, which we’re quite excited about although it’s not going to have a significant impact on revenue this year, those would be the catalysts for making a change to the revenue guidance at the top end of the range.
Andrew Boone: Thank you.
Operator: Thank you. Again ladies and gentlemen, if you’d like to ask a question, please press star-one-one on your telephone. Again, to ask a question, please press star-one-one. One moment, please. Our next question comes from the line of Nick Delfas of Redburn. Your line is open.
Nick Delfas: Thanks very much. I’ve only got one question remaining that hasn’t been answered, which is just on the gross margin. If we look at the graph of your gross margin over time, it was a little bit weaker in ’22 and then obviously bounced in Q1, and you mentioned, Jarrod, that there was some resets that occur. But more broadly, are there any impacts on gross margin that we should be thinking about from AI or in general from how you’re paying your contributors that could lead to levels change upwards or downwards over the next few years? Thanks very much.
Jarrod Yahes: Nick, thanks so much for your question, appreciate it. On the gross margin side, you’re correct vis-à-vis the royalty reset that happens in the first quarter, so that’s a normal trajectory that we see over the course of the year. As we think about our business mix and as we think about out Studios business and as we think about some of the data partnerships we’re entering into, we’ve said this publicly in the past, but we are paying out our contributors a royalty rate that is effectively equivalent to the royalty rate that we’re paying on our core content business. We think it’s the right thing to do, so the gross margins that we’re seeing on our data partnerships are consistent with the gross margins in Shutterstock overall, and so that cost of goods sold, the single largest component of that are the royalties that we’re paying to our contributors.
As you think about our business on a go-forward basis and you think about the changes to gross margin, the only piece that could change is to the extent that there is more software that is included in the service offering, and so if you think about things like our Creative Flow platform, our creative flow platform is really based on software tools, and software doesn’t have cost of goods sold and royalties in the same way that a content offering has. To the extent we see success in a pure tool first offering, you would see enhancements to our gross margin and an upward trajectory to our gross margin in the years to come.
Nick Delfas: Thanks very much indeed.
Paul Hennessy: Thanks for joining, Nick.
Operator: Thank you. One moment please. Our next question comes from the line of Nat Schindler of Bank of America. Your line is open.
Nat Schindler: I think that was me, because I heard America. Was that Nat Schindler?
Operator: Yes sir. Your line is open.
