That video of Pavlovsky standing at his pool table in his multi-million-dollar house like a stiff cardboard cutout, reading stilted jargon-filled gobbledygook into the camera with a bad microphone with lots of echo, then awkwardly hitting his cue ball with that self-satisfied let-them-eat-cake smirk, tho...

You can read the earnings call transcript here - it would be funny if it wasn't so serious for all of us.

https://www.fool.com/earnings/call-transcripts/2020/07/28/shutterstock-inc-sstk-q2-2020-earnings-call-transc.aspx

Some random thoughts on why SSTK closed at $51.06 today and the claims made in the earnings call.

Wall Street was happy at the profit numbers being so much higher than earlier guidance.

There's a new VP of Investor Relations - I guess that highlights where Stan Pavlovsky's attention is focused. Fire the reviewers and hire someone to sweet talk investors...

They claim over 340 million images - that doesn't include video and I don't see how they came up with that number. Not sure it matters as IMO the bigger story is the piles of junk they're adding to the collection. There is still some good stuff coming in, but when they were claiming 170k+ per day at the end of May and today it's 123k+ it's not good news. As I've mentioned in some tweets, a lot of searches I tracked at the end of May have many fewer images today, even though the collection numbers are up. I think the difference is image spam and stuff from newbies that should never have been accepted and will never sell.

They got lucky with an earnings boost from unused subscriptions as a result of the pandemic as well as our royalty cut (which was for only 1 month of the 3 in Q2) - buyers weren't downloading so Shutterstock didn't have to pay out royalties but kept the subscription revenue.

Stan's all eager puppy about  growing platform solutions - the most recent of which is the Microsoft ad deal. Yesterday Kate offered in the Shutterstock forums that what contributors would be paid was proprietary information but it wasn't the minimum subscription amount:

https://twitter.com/joannsnover/status/1287952508699082752

I can imagine their excitement at having more revenue sources (fees for the API deals) that don't involve paying royalties - i.e. contributors don't get a cut of any fees, only some subscription royalty when images are used.

Stan on the API integrations as a source of growth: "...we are redeploying capital into our platform solutions offering and undertaking significant global expansion of our sales and technical integration team"

I don't have a clue what this word salad means, but somehow I think Stan believes that Shutterstock gets to interact with the end user of images served up as part of ad placement deals. I don't see how that comes about. He said Shutterstock benefits "...because we are accessing our customer's customer, we expect these relationships to effectively open up new market segments for us" and that these customers are more likely to stay (customer retention & "stickiness")

They've fired reviewers and are using AI - looking at the content they could save money on the AI as there's so much dreck (you can look at twitter posts from @joannsnover for pictures)

They've put the best spin possible on the enterprise side of the business continuing to decline (blah blah about the new sales teams being in place): "We expect to always have some meaningful non-subscription component of our business, including editorial and custom but expect that it will become a minority of our revenues over time. " So don't count on bulking up contributor earnings with a return to large SOD royalties

I love "margin expansion" as a way of referring to cost cutting, but they can't goose profits for the "back half of the year" the same way they did this time - more royalty cuts? More "leftover" subscription revenue they keep?

"Subscribers increased 30% to 223,000." - I'm surprised it's that small a number given the boast of 2 million customers overall. Subscriber revenue averages $281 for Q2, or $1,124 per year (if the mix stays the same).

There was talk about acquisitions but nothing clear about what they might buy. This is from the CFO in reply to a question on M&A from an analyst who asked for "incremental color":

 "we believe that these are businesses that are often additive from a content-type perspective and may give us a leg-up with this specific type of content, give us access to a new contributor community. "

I wonder if the need for a new contributor community might be as a result of having royally ticked off large chunks of their existing contributor community?

The CFO went on to blather about tools & utilities a creative uses - meaning, I think, Canva-like design tools that make social media banners & ads easy to create. And he said they look at AI & machine learning for identification of content, performance of content. I assume this is all trying to help their API customers select images and track how they're doing.

One analyst asked about competition and which competitors they might eliminate - the answer was dancing around the subject (Stan didn't mention any competitors). "Integrating deeper" with customers and improving the "margin profile".

An analyst asked about whether the new video subscriptions had contributed to the subscription growth and the answer was they don't give details by product. Stan did say that the "prosumer" segment with smaller subscriptions is growing faster than the bigger subscriptions. Pavlovsky used the term "casual creatives" which I think means users of Canva-like products

Only one analyst, Lloyd Walmsley at Deutsche Bank, asked about "changes to the royalty payouts to contributors". Pavlovsky dodged the question, saying there were multiple things affecting gross margins "...including hosting costs of our data centers, content ingestion costs, credit card fees, royalties."

The CFO followed up with a note on the lower unit prices of subscription products "And we believe that the structure we have in place today enables that." I translate that to say that switching to a percentage basis with a 10� floor for subscription royalties allows them to heavily discount and still make money. He talks about gross margin "stability" and not to expect an increase in gross margins in Q3 & Q4 because price is the other variable. So they can keep their percentage of the take constant but don't expect the absolute numbers to jump up.

The CFO also claimed that their costs will be lower because there's less need to bring in net new customers, just to retain the ones they have. I think he too needs to look at the garbage they're accepting to anticipate a future attrition in subscribers because they can't find what they need.

The idea that Stan the clueless talks about "transitioning" to being a subscription business made me laugh. I think he means that they're not so focused on growing via the enterprise route, but it sounds as if he's forgotten how Shutterstock started

The buzzword-laden talk by Pavlovsky is worth a read just for a chuckle. Possibly it impresses the analysts??