We estimate that we will receive net proceeds from this offering of
approximately $66.7 million from the sale of our shares of common stock in this
offering, or approximately $77.4 million if the underwriters exercise their
option to purchase additional shares of common stock to cover over-allotments
in full, based on the initial public offering price of $17.00 per share, and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by us.
The principal purposes of this offering are to increase our capitalization and
financial flexibility, improve our visibility in the marketplace and create a
public market for our common stock. We currently intend to use the net proceeds
from this offering primarily for general corporate purposes, including working
capital and capital expenditures. We anticipate capital expenditures of
approximately $3 million for the second half of 2012 relating to the
acquisition of additional servers and network connectivity hardware and
software and other costs associated with scaling our operations, technology and
infrastructure to support our growth.
We may also use a portion of the net proceeds to repay all or a portion of the
term loan facility that we entered into on September 21, 2012 to fund our
working capital needs following the final cash distribution to the members of
Shutterstock Images LLC prior to our Reorganization. We have outstanding
borrowings of $12.0 million under the term loan facility and expect to have
outstanding borrowings of $12.0 million under the term loan facility as of the
effective date of the registration statement of which this prospectus is a
part. The term loan facility provides for interest on the term loan, at our
option, at the prime rate as published in the Wall Street Journal minus 0.75%,
or a LIBOR-based rate plus a margin of 2.00% and matures on the earlier of (i)
September 21, 2013 and (ii) the date on which such facility is accelerated
following the occurrence of an event of default. We selected the one-month
LIBOR-based rate and can select a new interest rate option after the month
expires.
In addition, we may use a portion of the net proceeds to acquire or invest in
complementary companies, products or technologies, although we currently do not
have any acquisitions or investments planned. Based on our historical cash from
operations, as well as borrowings under our term loan facility, we do not
expect that we will have to utilize any of the net proceeds to us from this
offering to fund our operations during the next 12 months. Therefore, we will
have broad discretion over the uses of the net proceeds received in this
offering. Pending such uses, we intend to invest the net proceeds from this
offering in interest-bearing, investment grade securities.
The market for commercial digital imagery is highly competitive. We believe
that the principal competitive factors are:
• the quality, relevance and breadth of the images in a company's collections;
• the accessibility of imagery, in the form of the speed and ease of search and
fulfillment;
• effective use of current and emerging marketing channels;
• effective use of current and emerging technology;
• pricing and licensing models, policies and practices;
• brand name recognition;
• company reputation;
• customer service and customer relationships;
• security, reliability and data protection; and
• the global nature of a company's interfaces and marketing efforts, including
local languages, currencies, and payment methods.
Some of our current and potential significant competitors include:
• other online marketplaces for imagery such as iStockphoto, Fotolia, and
Dreamstime;
• traditional stock content providers such as Getty Images and Corbis
Corporation;
• specialized visual content companies that are established in local, content
or product-specific market segments such as Reuters Group PLC, the Associated
Press, and Thought Equity Motion;
• websites focused on image search and discovery such as Google Images;
• websites for image hosting, art and related products such as Flickr;
• social networking and social media services such as Facebook; and
• commissioned photographers and photography agencies.
Lastly, we compete with the individuals who create their own imagery or do not
consume licensed images because it is too expensive or because they are not
aware of how to do so.
communications, books, publications and video content. Demand for commercial
digital imagery comes primarily from businesses, marketing agencies and media
organizations. We estimate that the market for pre-shot commercial digital
imagery will grow from approximately $4 billion in 2011 to approximately $6
billion in 2016, based on a study conducted on our behalf by L.E.K. Consulting
LLC. There has been a significant increase in the demand for commercial digital
imagery as rapid technological advances have reduced the cost and effort
required to create, license and use images. Our global online marketplace
brings together users of commercial digital imagery with image creators from
around the world. More than 550,000 active, paying users contributed to revenue
in 2011, representing an increase of 71% compared to the prior year. More than
35,000 approved contributors make their images available in our library, which
currently consists of more than 20 million images. This makes our library one
of the largest of its kind, and, in the twelve months ended December 31, 2011,
we delivered more than 58 million paid downloads to our customers.
Our online marketplace provides a freely searchable library of commercial
digital images that our users can pay to license, download and incorporate into
their work. We compensate image contributors for each of their images that is
downloaded. This marketplace model allows us to offer a disruptive, low-cost
and easy-to-use alternative to the time-consuming and expensive traditional
methods of obtaining commercial imagery. It enables millions of small and
medium-sized businesses, or SMBs, to affordably access commercial digital
images, and allows larger enterprises and media agencies to more easily and
efficiently satisfy their increasing image needs.
We are the beneficiaries of significant network effects. As we have grown, our
broadening audience of paying users has attracted more images from
contributors. This increased selection of images has in turn helped to attract
more paying users. The success of this network effect is facilitated by the
trust that users place in Shutterstock to maintain the integrity of our branded
marketplace. Every contributor in our marketplace and every image we make
available must pass our proprietary screening process and meet our standards
of quality. In addition, and unlike the significant majority of free images
available online, our rigorous vetting process enables us to provide confidence
and indemnification to our users that the images in our library have been
appropriately licensed for commercial or editorial use.
We make image licensing affordable, simple and easy in order to encourage a
high volume of purchases and downloads. Our customers' average cost per image
is approximately $2.00. We are a pioneer of the subscription-based usage model
in our industry, whereby subscribers can download and use a large number of
images in their creative process without concern for the incremental cost of
each download. A significant majority of our downloads come from subscription-
based users, who currently contribute approximately half of our revenue. We
also offer simple and easy-to-use On Demand purchase options for users with
less consistent needs. As a result of our simple and affordable licensing
models, we believe that we achieved the highest volume of commercial image
downloads of any single brand in our industry in 2011. In addition to driving
revenue, this high volume of download activity allows us to continually improve
the quality and accuracy of our search algorithms, as well as to encourage the
creation of new content to meet our users' needs.
Our revenue is diversified and predictable. More than 550,000 customers from
more than 150 countries contributed to our revenue in 2011, with our top 25
customers in the aggregate accounting for less than 2% of our revenue. We have
historically benefitted from a high degree of revenue retention from both
subscription-based and On Demand customers. For example, in 2009, 2010 and
2011, we experienced year-to-year revenue retention of 82%, 96%, and 102%,
respectively. This means that customers that contributed to our revenue in 2010
contributed, in the aggregate, 102% as much revenue in 2011 as they did in
2010. Customers typically pay us upfront and then use their downloads in a
predictable pattern over time, which results in favorable cash flow
characteristics and has historically added predictability and stability to our
financial performance.
We have achieved significant growth since our marketplace was launched in 2003.
In 2010 and 2011, we generated revenue of $83.0 million and $120.3 million,
respectively, representing period-over-period growth of 35.8% and 45.0%,
respectively. In 2010 and 2011, we generated Adjusted EBITDA of $21.8 million
and $26.5 million, respectively, and Free Cash Flow of $27.6 million and $36.1
million, respectively. In 2010 and 2011, our net income was $18.9 million and
$21.9 million, respectively. We are a global business; in 2011, 34% of our
revenue came from North America, and 66% came from the rest of the world.
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Our principal office is located at 60 Broad Street, 30 th Floor, New York,
New York 10004, and our telephone number is (646) 419-4452. Our corporate
website address is www.shutterstock.com. After launching our marketplace in
2003, we organized in the State of New York as Shutterstock, Inc. in December
2004, and we became Shutterstock Images LLC in June 2007. On October 5, 2012,
we reorganized from Shutterstock Images LLC, a New York limited liability
company, or the LLC, to Shutterstock, Inc., a Delaware corporation.