Jarrod Yahes: Sure. So Youssef, I think you are correct, both in your overall assessment on Q4, both revenue as well as EBITDA. I think EBITDA, if you sort of do the math, you look at the guidance for the full year, and you look at the $10 million of incremental sales and marketing spend, you will get to EBITDA in the low 20s in percentage terms and I think you will get to mid-single digits in terms of revenue growth for the quarter. I think this is clearly putting $10 million of incremental sales and marketing spend on the back of $8 million of incremental sales and marketing spend, a very heavy investment period for us. We are doing that on the back of exceptional year-to-date profitability. I do not think that our Q4 EBITDA margin level is sort of the stable run rate for the business that you expect going forward.
I think at this point, if you look back on the history of the company over the last three or four years, you’ve seen a very consistent focus on both revenue growth and profitability, I would not expect that to change.
Youssef Squali: Awesome. Thank you so much.
Operator: [Operator Instructions] The next question comes from Andrew Boone with JMP Securities. Your line is open.
Andrew Boone: Good morning and thanks for taking my questions. I wanted to go back about the 2024 disclosure that you guys had in terms of the [indiscernible]. It sounds like revenue from new data contracts will be more recurring going forward. Can you just give us more details there and talk about maybe the trade-offs of recognizing more revenue upfront versus elongating that? Thank you.
Jarrod Yahes: Sure, Andrew. So there’s two disclosures that we made in our prepared remarks that are, I think, incremental and helpful. One is beyond the two new customers that have been driving in-year revenues there’s about $40 million of total contract value of pipeline that is either booked or in the process of being booked, that will largely contribute to revenues in both 2024 and beyond. And so we have line of sight today into at least $60 million of revenue in 2024, and that’s really before we end the year and continue to sell and deliver in 2024 itself. So we’re clearly in a very good position to continue to build this business and build it from a position of strength and stability. Whenever you transition from a perpetual license deal to more of a ratable revenue recognition model, there can be an impact on revenue growth.
We’ve seen that with other companies over the years. But we do believe that this is a model that will create greater visibility for Shutterstock. We think it’s a model that we’ll be able to invest behind because we will have a much greater sense of the forecastability of the business and where we are. And I think this trend towards a greater number of smaller customers will also benefit our ability to forecast and have visibility in this business. So I think this is part of the natural maturation that any new service line undergoes, and we feel really good about the way this business is evolving with respect to demand, with respect to the way the customers are coming in and the way we’ll be servicing and delivering against their needs.
Andrew Boone: Great. Thanks for that. And then Enterprise ex-data partnerships revenue accelerated in 3Q 2023. The question I want to ask is, can you talk about the difference of adoption between enterprise versus self-service? Why the divergence and what’s different on the enterprise side ex-data partnerships?
Jarrod Yahes: Sorry, Andrew, just to clarify your question. You’re talking about adoption of what specifically?
Andrew Boone: What I want to get out is stock media, right, is you’re seeing the enterprise just much more stable on enterprise revenue ex-data partnerships versus e-com? And just talk about the difference between the two, and again, why do you think that’s the case? And how do we think about that going forward? What’s the opportunity? What’s the risk?
Paul Hennessy: Great question, Andrew. Here’s how we think about it. If you think about the e-commerce side, you have a stable set of small and medium customers that are consistent users of our product, whether it’s images, video, music or other. And on the enterprise side, you’ve got very large-scale customers that have been with us for a very long time, with very high retention rates because Shutterstock is just clearly front and center and a critical aspect of their workflow. And so what you see is high retention, high growth as we bring more products and services to bear for our enterprise customers. And there tends to be on the e-commerce side a level of infrequent use, which is exactly why we created the new product that I talked about, Shutterstock Essentials, so that customers can engage at a lower price point and still get a high-value product that meets their needs.
So there are just two different kinds of customers. And even within the super categories of e-commerce and enterprise, you have sub-classifications of segments of customers and our goal is to make sure that we’ve got the right product mix for each one of those segments.
Andrew Boone: Great. And then just for my last question. In 2Q, you saw gross margins decline 50 basis points. You saw a 100 points in 3Q. Can you just talk about the gross margin profile? Is there any change as newer products enter the mix? Thanks so much guys.
Jarrod Yahes: So Andrew, this quarter, we did see a slight compression in the gross margin. But as we called out in the prepared remarks, some of that is as a result of some of the Giphy compensation that flows through our P&L. It’s also as a result of stock compensation expense and that stock compensation expense ticks up because we do compensate our team partially through performance restricted stock units. And when the expected results for the year improve, which they have the expense ticks up and that partially flows through our gross margins. There is nothing structural in our business today that is impacting the gross margins. And as we’ve mentioned in the past, our data deals have very comparable gross margins to our core content business because we’re paying our contributors royalties that are commensurate with our core content business.
There are interesting opportunities in the future, however. Giphy has the potential to be a higher gross margin business for Shutterstock and that’s something that we’re keenly aware of and quite excited about as we move into an advertising-based model.
Andrew Boone: Thank you.
Operator: [Operator Instructions] The next question comes from Curtis Nagle with Bank of America. Your line is open.
Curtis Nagle: Great. Thanks for much for taking it. Maybe just staying on that line, Paul, maybe as much as you can, I know its early days, but just talk a little bit about, I guess, the monetization potential for Giphy. Obviously, it could be really big. Just given the level of impressions you’re getting and kind of the team in place. But yes, just would be curious to hear how you guys are thinking about it? And then I’ll follow-up after that.
