Q4 2022 Shutterstock Inc Earnings Call
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Good day and thank you for standing by welcome to the Shutterstock, Inc. Fourth quarter earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need a press star one one on your telephone you will then hear.
Automated message advising you your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Christian VP Investor Relations and corporate development. Please go ahead.
Thanks Michelle.
Good morning, everyone and thank you for joining us for Shutterstock fourth quarter 2022 earnings call joining us today as Paul Hennessy, Shutterstock, Chief Executive Officer, and Jared Yeas, Shutterstock as 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 may acquire into our exist.
Operations.
Our future growth margins and profitability, our long term strategy and our performance targets, including 2023 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 filed with the SEC from time to time, including the risk factors discussed in our 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'll 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 in our press release and in our 10-K.
I'd now like to turn the call over to Paul Hennessy, Chief Executive Officer.
Thanks, Chris and good morning, everyone. Thank you for joining us today.
Today, we'll be discussing with Shutterstock 2022 results and 2023 outlook.
We'd also like to provide an update on some of the exciting developments in our end to end creative platform across both our e-commerce and enterprise channels.
<unk> closed out 2022 with $828 million in revenue and $218 million in EBITDA, well ahead of our expectations and guidance.
Overall, despite growth in North America and rest of world.
Saw weakness in Europe , where growth was negative 4% for the year. This weakness in Europe was most evident in our E Commerce channel.
Overall, our ecommerce channel was up 2% in 2022 with revenue growth in North America, offset by a decline in Europe and rest of world.
Meanwhile, our enterprise channel grew 15% in 2022, its second consecutive year of double digit growth.
This growth reflects continued momentum driven by our multi asset and multi touch point relationships with large enterprises across North America, Europe , and rest of world as well as continued innovation in our product offerings.
Looking ahead to 2023, our team is excited to capitalize on our strengths as an end to end creative partners Shutterstock is well positioned to ultimately offer more value to our customers and to achieve sustained growth.
Since joining as CEO last year I've been talking about our content library, our creative flow platform, our enterprise capabilities and a highly engaged team as the key drivers of differentiation and value creation at Shutterstock.
This quarter, we leverage these strengths to bring differentiated value to our customers.
Today I want to talk about how shutterstock is nominally embracing AI, but also commercializing it for the benefit of both our e-commerce customers within our creative flow suite, and our enterprise customers with our computer vision offering.
Furthermore, I'd like to provide a few examples of how our broader end to end creative platform has really resonated with our enterprise customers.
In January we formally launched our AI image generation platform to all of our customers.
Across both our e-commerce and enterprise channels.
<unk> Socs AI image generator allows anyone to create high quality visuals ready in seconds simply by describing what theyre looking for.
There are there are three truly unique differentiators, which set shutterstock apart in terms of bringing this innovative capability to our customers, namely ECM quality convenience and confidence.
Ethan quality our image generator has been designed for creative use cases to produce unique very high quality images from just a single word input or short simple phrases.
We have built into the user interface and intuitive style ticker and integrated support for over 20 languages, we offer the ability to discover and license stock content and generative content in the same platform with a single plan, which is a unique capability in the market today.
Convenience, we are immediately integrated this capability and put it into the hands of existing customers, making generative available in all our subscriptions pack products and enterprise offerings.
Confidence customers that peace of mind when it comes to licensing content. That's created on our generative AI platform by virtue of being powered by properly commercially licensed training data.
Also our customers know that we're paying creators and have uniquely structured our contributor fund to compensate artists for the revenue generated by Shutterstock in connection with the licensing of generative AI content and of our training data.
In short, we believe that Shutterstock AI image generation platform is uniquely positioned at the intersection of creativity and productivity.
I would now like to turn your attention to our E Commerce channel specifically.
Beyond the ease of use and peace of mind I described just now we also have integrated our generator regenerative AI platform with creative flow for E. Commerce customers. As a result, AI image generation is a seamless part of our customers create a journey to.
To illustrate after creating a generative AI image a customer can edited in our creative ad.
<unk> store and search for them and catalog and amplify them on various social channels using our calendar in plan.
We are encouraged by the engagement we've seen in the short period of time. Our early read is that were seeing about 75% of the generative AI traffic come from potential new customers and 25% from existing customers engaging with the new technology.
End users have already created over 3 million generative assets in just the past two weeks since launch.
While we're excited by this large scale and early engagement. We're currently focused on an incremental monetization opportunities.
Also on the E Commerce front I'm very excited about the newest addition to our leadership team with John Kane, joining us last week as the global head of E Commerce.
John is a seasoned executive with a proven track record of successfully leading ecommerce businesses. He was most recently at <unk> wallet and Brown and his almost 10 years of experience at Priceline Dot com.
John will be focused on driving growth in our ecommerce channel and as such will be partnering closely with our product marketing and business operations team.
With its unique combination of workflow applications and content, including now generative AI content Shutterstock has a solid foundation upon which to continue building and evolving and we look forward to John's contributions.
I would now like to provide an update on our enterprise channel.
We continue to see sustained growth in our enterprise channel underpinned by one extremely strong customer retention, which is now in the mid nineties.
Solid growth in our subscription bookings, which were up 27% for the year and three an acceleration in large enterprise deals valued at more than $100000, which grew 24% for the year.
We are also investing in high profile branded events, such as con Sundance and south by southwest to drive awareness and demand for our enterprise offering.
Clearly our performance in the enterprise in 2022 and in the fourth quarter was exceptionally strong and our end to end creative platform is resonating with our enterprise clients I'd like to provide a few examples of how our products and offerings are being applied in increasingly diverse use cases.
Amazon Web services wanted to showcase some of the ways in which its customers and partners are using AWS.
To that end as Shutterstock Studios produced a collection of 32nd animated videos to highlight how these customers and partners use AWS to solve business challenges.
Shutterstock partnered with Allergan in its initiative to promote inclusion is static medicine.
Producing a collection of images that includes it includes a range of people have varying gender color race age and abilities.
This diverse gallery is available for download and is a great example, how shutterstock is embracing inclusive representation.
And the editorial front Shutterstock provides must have content in connection with breaking news and celebrity Entertainment news often on an exclusive basis.
Since our acquisition of Splash news, we're seeing increased demand for our content and coverage from the global media companies like the Daily Mail News UK and Ireland, The New York Post and TMZ.
With <unk> five we continue to see demand from large streaming platforms and TV and film production studios companies like Netflix Disney and discovery channel all rely on PON five as their source for the critical ingredient that goes into their creative endeavors.
Our enterprise business has also been signing computer vision partnerships by leveraging Shutterstock AI and our massive pool of licensed civil metadata.
Subsequent to establishing a partnership with open AI and LG, which I discussed last quarter, we've been announcing additional partnership with meta in which our data content library and associated metadata is being licensed to train their generative AI models and to enhance their machine learning capabilities.
Today, Shutterstock AI content library that we use for model training consists of 600 million images 45 million videos 2 million music tracks and over a million three D models.
It is massive diverse and transparently license at all.
Looking ahead, we believe we can leverage our leading position as a licensing partner to commercialize our data across more use cases that go beyond generative AI applications.
In closing as this management team's drive the business forward, we're striking a prudent balance between investing for growth. During this time of massive innovation and AI in our industry and remaining nimble in the event of continued economic challenges.
Looking ahead I'm excited for what's in store in 2023, as we continue to deliver value to our customers with a content tools and data and our end to end creative platform spanning generative AI computer vision and much more.
And I look forward to seeing many of you in person at our Investor Day here in New York at the Empire State building and a few weeks.
I'll now hand, the call over to Jared to discuss our financial performance and our guidance.
Thank you Paul and good morning, everyone. We're extremely pleased to have ended the year with revenues of $828 million significantly above our previous expectations.
For the full year 2022, our revenue growth was 7% or 11% on a constant currency basis with our E Commerce channel growing 2% and our enterprise channel growing a robust 15%.
In the fourth quarter E Commerce revenue was down 5% on a reported basis and down 2% on a constant currency basis.
The growth rate in our E. Commerce channel continues to be meaningfully impacted by ongoing weakness in Europe , where macro uncertainty is having a more pronounced impact with weak new customer demand exacerbated by FX pressure.
To give investors a sense of the weakness in Europe, our E Commerce business in North America grew 4% in the quarter by contrast, our e-commerce business in Europe, and the rest of the world combined was down 12% or 16% differential relative to North America.
It's clear that Europe has gotten worse from the third to the fourth quarter, whereas North America has remained stable.
Turning to our enterprise channel in the fourth quarter Enterprise grew 25% on a reported basis or 30% on a constant currency basis.
Performance in our enterprise channel exceeded our expectations with revenue growing across all regions, including Europe .
Enterprise growth in the fourth quarter was driven by growth in our multi asset flex product offerings.
Multiple computer vision deals strong momentum in studios and editorial and the contributions from our acquisitions upon five and splash.
These products and business lines, and enterprise are gaining scale and growing in excess of 20% with some closer to 60% growth and therefore powering our enterprise channel growth in a balanced manner, our investments in enterprise are paying off.
Turning to our income statement for both the full year in the fourth quarter gross margins were flat, excluding noncash M&A or amortization.
Sales and marketing expense in the fourth quarter was 22% of revenue compared to 30% in the fourth quarter of 2021, which included over $6 million of linear TV ad spend.
For the full year sales and marketing expense was 25% of revenue compared to 26% in 2021, the decrease largely related to our TV brand spend campaign in 2021.
Product development was 8% of revenue flat with the fourth quarter of 2021, reflecting continued investment in our product offerings and the integration of our acquisitions.
For the full year product development increased to 8% of revenue from 7% in 2021.
G&A expenses were 18% of revenue compared to 17% in the fourth quarter of 2021, driven by an increase in bad debt expense.
However for the full year G&A expenses decreased to 16% from 17% in 2021.
We are continuing to see operating leverage in our business per our expectations and that's manifesting itself in the G&A line.
With the difficult macroeconomic backdrop, we are sharply focused on cost and margins and our results are showcasing that profitability focus.
We are keeping a close eye on our head count.
Engaging in process automation and right sizing, our physical office footprint.
As part of right sizing our office footprint in the fourth quarter, we recognized a noncash impairment charge related to lease and related assets of $18 7 million associated with our decision to close or consolidate certain office spaces that had been underutilized.
We expect this charge to benefit go forward lease operating expenses by more than $2 million per year in 2023 and beyond.
In the fourth quarter, adjusted EBITDA was a record of $58 million.
Shutterstock grew EBITDA by 13% this year from $193 million to $218 million and EBITDA margins meaningfully exceeded our target for margin expansion, increasing 138 basis points to 26, 3% from 25% in 2021.
John .
This is the third consecutive year, we've driven significant margin expansion and as a result, our EBITDA has more than doubled over the course of the past three years.
Turning to our balance sheet, we had $115 million of cash at the end of the quarter and exhibited strong cash flow generation.
As of December 31, we had $50 million drawn on our revolver. However, we've now fully repaid this balance and have zero debt on the balance sheet.
On January 31, we announced a 13% increase in our quarterly dividend to <unk> 27 per share, which will be paid on March 16th.
This increase was attributable to the strengthen our cash flows zero debt on the balance sheet and our confidence in the business for 2023.
During 2022, we repurchased 984000 shares for $73 million in REIT and completed the $100 million repurchase authorization.
As a result, our shares outstanding decreased by 588000 shares compared to 2021.
Our deferred revenue balance was 187 million and increased $13 million from the third quarter of 2022, primarily due to growth in enterprise.
On our key operating metrics for the quarter subscriber count was 586000 from 343000 last year driven by the inclusion of creative flow plus and pick monkey subscribers.
Subscriber revenue increased by 9% to $88 8 million.
Average revenue per customer decreased to $341 driven by the inclusion of smaller <unk> subscribers.
Paid downloads were down five 6% and revenue per download increased to $4 49 per download.
Consistent with what we're seeing in our revenues paid downloads were up and our enterprise channel and down in e-commerce, largely due to weakness in Europe.
Finally, turning to our guidance.
Our expectations for the full year 2023 are as follows.
Revenue of $836 million to $853 million, representing 1% to 3% annual revenue growth.
Adjusted EBITDA of $220 million to $228 million with margins ranging from flat to up 50 basis points and.
And adjusted earnings per share between $3 92.
To $4 <unk> per share.
Our revenue guidance is based on recent spot rates for the euro and pound and FX is expected to be a 1% headwind to revenue growth while the additional months contribution upon five adds 2% to revenue growth.
Our guidance is reflective of the ongoing macro challenges, we're seeing in Europe , and a cautious approach to overall customer demand.
We expect revenue growth to be first half loaded with faster growth in the first half of 2023.
We are not factoring into our guidance any upside from the rollout of generative AI or from additional computer vision partnerships beyond the deals we've already signed.
We are bullish on both of these opportunities in our pipeline and our prospects.
But until deals are signed or we see significant revenue increments Audi we prefer to keep them out of our forecast.
From a margin perspective, we are targeting up to 50 basis points of EBITDA margin expansion in 2023, driven by operating leverage in G&A and our ongoing focus on cost management.
Other modeling assumptions include stock based compensation of $55 million depreciation and amortization expense was $68 million.
Capital expenditures of $45 million and an effective tax rate percentage in the high teens.
Before opening up for questions I'd like to formally invite everyone on the call to our Investor day to be held in the Empire State building on February 28th.
We plan to have an immersive extended reality experience for investors, including deep dives into generative AI and creative flow and multiple other business opportunities.
Thank you so much for your time and attention with that operator, we'll now open the call for any questions.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
And our first question comes from the line of Andrew Boone with JMP Securities. Your line is open. Please go ahead.
Hi, guys. Thanks, so much for taking my questions can we start on the enterprise side of the business you talked about strength within multi asset <unk> computer vision deals editorial upon 5% flash while contributing but there was this a significant step up from <unk> to <unk> can you just break that down and help us better understand that drive.
Or is there and then.
You talked about just not including the pipeline of computer vision assets for 2023 can you just talk about the pipeline and what that looks like you seem to have added open AI embedded matter what else is out there as you think about that.
Just as a kind of an extension of that.
You talked about earlier licensing beyond generative AI can you just flush that out so three questions for you guys. Thanks, so much.
Thanks, So much Andrew and we'll try and remember all of those three questions to the best of our ability, but you may have to get us back on track if we if we lose focus.
So look turning to our enterprise business, we turned in a spectacular year.
The business grew 15% Paul gave some of the.
Really compelling metrics around how we grew our subscription bookings, which were up 27% the acceleration in the large deals which grew 24% and the strong customer retention, which was in the mid nineties. So all of those fundamentally when you think of the core of the enterprise business we're moving.
Up into the right.
There are multiple business lines in our enterprise business, which don't comprised 10% of the revenues of the business. So that would include studios that would include editorial that would include computer vision those businesses are growing somewhere between 20% and 60% a year. So we've got these engines of growth that are in enterprise.
Sort of rowing the boat forward and they are performing particularly well, we don't break out the quarterly or annual contribution of those individual business lines, but there are a number of different pockets of growth and it resulted in a fantastic growth for the year and great growth for the quarter.
I think your next question was really just pertaining to our to generational AI.
Andrew are you most interested in sort of the increments around it or what was what was sort of a specific key area you were honing in on.
Okay.
So two points one of which is just how do we think about these contracts on a go forward basis.
The step up there now on a go forward basis is it based on usage is it kind of an ongoing subscription.
Type a revenue period that we should be able to just simply model that going forward like how do we how do we think about the step up in <unk> than extending into 'twenty three.
And then additionally earlier on I think.
Paul you mentioned.
Licensing beyond generative AI and so the second half of that question is just can you flush out what is the.
What do you guys see beyond generative AI.
Sure Andrew I'll answer the first part of that and then and then pass it over to Paul So in terms of the computer vision deals that we signed these are large partnerships.
Those partnerships are positively impacted the fourth quarter.
They will positively impact 2023, and these are long term deals that will continue to benefit our business into 2024 and beyond.
These deals do have somewhat of an upfront revenue composition, but theyre also tells a revenue that continue on through the long life of the contract.
Moreover, we believe that there is a variety of ways that we can add value to these relationships and grow these relationships over time. So we don't view these as discrete deals with companies rather partnerships that we expand into and grow off of.
And internally, we've really proven our ability to use these as leverage points to develop larger more multi pronged relationships with the clients. So we're starting to really have strategic level engagements with customers and enterprise in a way that we never had before and theyre, becoming much more multifaceted and long term and recurring in nature.
Sure.
Thank you and we'll move on to our next question.
And our next question comes from the line of.
Brian Mccarren with Needham <unk> co. Your line is open. Please go ahead.
Great. Good morning, Thanks for taking the questions.
Maybe just to start.
The 75% of traffic from new customers that are using generative AI and create a flow are these are these paying customers or trials.
And then also any insight you can provide in terms of if it's like a new vertical that's using January of AI or kind of what youre seeing from the composition of clients.
Okay.
Ladies and gentlemen, please remain on your line your conference will resume shortly I think we are experiencing technical difficulties.
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Again, ladies and gentlemen, please remain on the line your conference will resume shortly.
Yes.
Can you just find out where they start getting us.
And Dan.
Hi, we're back.
Great speakers.
We do have Bernie mcternan with Needham <unk> company in the queue to ask a question Bernie. Please go ahead.
Hey, guys.
Thanks, Adam So you mentioned in the prepared remarks, 75% of traffic for new customers.
Our.
Our new to the platform any any just more detail you can provide on the verticals that these customers are paying are not just trying to get a sense of that.
The composition of people, who are using January of AI.
Yes, we tried to give you as much as we could in the in the few days since launch.
As I mentioned, we're seeing lots of lots of good engagement, we gave the mix of customers. We don't know if that's a.
A sustainable mix are representative.
Of what that will be.
Four weeks out eight weeks out in six months out. So we just tried to do our best to expose exactly what's happening.
On the platform today, and then over time as we have insight into.
The monetization of that behavior will be back out in discussing that.
Understood and we saw the customer count ticked down sequentially.
Was there anything that we should anything to call out that drove that.
Bernie I think the biggest pieces you've seen some of the weakness in our ecommerce business. The customer count is really driven by the E Commerce business.
Our enterprise customer count is very steady and a much smaller number as compared to the sort of aggregate customer count that we publish externally. So it's really a function of the weakness in E Commerce, which really is driven primarily by that significant differential in the performance of Europe as compared to the rest of the world and in the U S.
Got it and then lastly for me if I, just take paid downloads and multiply it by revenue per download.
And look at that relative to <unk>. It seems like there was like a.
$13 million step up in ancillary.
Larry that the right way to think about how much computer vision generated in the quarter.
Yeah, I think very well.
We don't we don't consider that ancillary revenue, it's not the right way to think about it. Unfortunately, we have a number of different businesses that fall into that area. So I would call out our studios as impacting that I would call. It our asset assurance business as impacting that I would call our computer vision business as acting mat.
And there are multiple other multiple other revenue streams that that sort of encompass that so.
Okay understood. Thanks for taking the question guys.
Thank you and one moment for our next question.
And our next question comes from the line of.
Joseph Squill with Truest. Your line is open. Please go ahead.
Hi, guys.
For taking the question. So I have two here just going back to the E Commerce comment.
Comments you guys have I know you have a new global head of of that division.
John just joined recently can you maybe be a little more prescriptive in how what youre doing to remedy growth, they're clearly that still the biggest piece of that business and for it to be still down year on year.
Obviously waiting on the on the old business.
Just kind of how do you think about you know.
How long will it take you feel for us to start to see it may be positive growth there.
And then.
Back to this AI relationships.
Can you help us maybe understand how the money flows.
From deals like <unk> and AI are metal for instance, beyond just the upfront piece.
I think Jerry you talked about the residual annual revenue there is it based on usage.
Just continual training of the AI or is it based on.
Literally the sale of the AI created images, even on third party sites, leveraging your content through Dolly too or or something like that just trying to get a better feel better understand how the money flows there.
Great Youssef I'll I'll start and then Jared can answer your second part question.
Hopefully what you are seeing and it is very apparent of what we're doing with ecommerce is we're getting we're getting very very busy.
We are we are focused on.
Everything from process improvement.
Our product development tool set delivery for our customers.
Additional content two to lift conversion and we're bringing in is as we mentioned more resources to focus on a very strategic part of our business called ecommerce.
And I'd say at the same time, we're laser like focused on being customer centric. So that we're listening to exactly what our customers needs Bill.
Building products and services for them and bringing content to bear.
So that they can find what they're looking for and and you know.
Action their business objectives. So we're going to continue to do that we've had a history of doing that kind of in the DNA and we're going to continue to focus R.
Our business on that we've also aligned our entire workforce to be very very strategic on the work that we do so we expect to be better executed.
As we as we move forward.
And you asked about the win.
And in this in this market with the current backdrop that we're operating.
Can't tell you that by June 1st or September 1st Theres going to be a magic event that suddenly ecommerce is going to magically start growing at the at the rates that we would be excited about but what I can tell you is we've got a lot of a lot of mines in hands working on that opportunity and we're feeling.
We're feeling pretty good about our chances of strong execution, there and that's reflected in our guidance and as Jared said, we believe that there is some potential upside to that guidance because of the things we did put in and we didn't put in.
And use it to the second part of your question just on the money flow as pertaining to our computer vision partnerships.
Ultimately, we have a massive pool of content and meta data and when our partners trained their AI and machine learning models, using our metadata as we confer that data.
That is used for model training and the money would flow we would bill an invoice those clients. They would pass we also receive 30 to 40 million new content assets, each and every year and so it is imperative to continue to train AI and machine learning models and so that's an extremely valley.
<unk> source of incremental metadata for our partners and so effectively there are contracting for a long term period to continue to ingest and pay for that metadata and that content.
We have typically.
Leverage those partnerships to also get some access to some technology, which we've done in the case of <unk> and LG or an open AI and we think thats, an intrinsic part of US working collaboratively with our strategic partners, but what we haven't done done. Thus far is we don't have effectively.
A rev share on the end products that those partners are going off and creating in their core businesses. So for example.
AI, we do not have a rev share with all the deals that open AI is going to do in the growth of their business, where effectively monetary monetizing our data and our content with those with those customers. What we are able to do though is as we access the technology.
We're able to monetize on our site. So we're able to monetize the core metadata Clos, we're able to charge within our core subscription and pack products for generative AI, which we hope will have incremental <unk> associated with the revenue growth in our business and as Paul mentioned the early engagement is.
Quite strong and we're really excited about what we're seeing thus far.
And Jared.
Did you quantify the organic growth that you guys had for the.
The quarter beyond the 6% to 9% growth rate that you gave for reported and FX adjusted what was the organic number when you adjust for upon five.
Sure Youssef so for the fourth quarter of 2022.
Organic growth excluding PON five was three 3% on a constant currency basis.
And flat on a reported basis, excluding PON five if you were to include PON five on a constant currency basis. The growth was nine 5% for the fourth quarter.
Got it thanks a lot.
Yes.
Thank you and one moment for our next question. Please.
And our next question comes from the line of Laurent <unk> with Morgan Stanley . Your line is open. Please go ahead.
Great. Thanks, I wanted to ask a few more about the AI partnerships. If I can first just wanted to confirm the upfront matter and LG partnership revenue was booked in the fourth quarter and then you said there were multiple computer vision deals in the fourth quarter. Just wanted to ask if there are any others. Besides those two in the quarter and then just.
Lastly, anything you can share around your visibility or the range of potential outcomes.
For those new partnerships heading into 'twenty three thank you.
Sure Lorraine so.
The good news is that the the LG and the meta partnership deals did positively impact the fourth quarter.
They will positively impact the first quarter.
2023, the second third and the fourth quarter of 2023 and into 2024 and beyond.
So this is something where we are seeing an immediate contribution but we're also going to be seeing a positive contribution in the quarters to come from these deals I can also confirm that these are the deals that we've put out press releases around.
And we've put out.
We have public permission to put out the names around.
But there are 20, plus other customers that we've been working with in this area some of which are extremely large companies the names of which we see around us each and every day, but we've not disclosed those partnerships and so there's a lot of momentum in this business there is a fair.
<unk> sizable number of deals that we've signed and and we feel quite good about the pipeline. So we're we're we're enthusiastic because these can be large deals, though and this is a new nascent business for us that's sort of coming to us in real time.
We're not yet at a place where we're baking large deals into our guidance and into our probability weighted pipeline as and when these large deals land will update the investor community.
There's a great pipeline, but this is all really so new and sort of happening to us in real time, So we're going to be a little bit more cautious from a guidance and forecasting perspective on this one.
Understood. Thank you.
Thank you and one moment for our next question.
Okay.
And our next question comes from the line of Nat Schindler with Bank of America. Your line is open. Please go ahead.
Yes, hi, guys everybody's asking about deals on the icon general debate or can you just talk more broadly about how.
Generally of AI is going to change the industry and how it's going to be used.
Kind of.
Both near medium and potentially long term, what you see that how you see this evolving and what are they going to be the impacts on both.
Artist as well as on marketplaces like yourself.
Nate.
I'll take that one and I'll I'll open with one of my standard answer is.
I don't know, but what I, what I would tell you is that we are doing everything in our in our power to make sure that we are among the first to figure out.
All of the use cases.
For AI.
You see the level of engagement that we've described in in two weeks.
And that tells US that we are we are fishing in the right pond in terms of our development by listening to our customers and in reading the tea leaves of which way. This industry is going we see obviously the most basic things people are Cree.
Creating images for their use we're using our underlying metadata to train models and we believe that this is just scratching the surface of of use cases.
For for AI, where our mines go.
In a world, where we are fine tuning.
Search queries to be able to generate content on behalf of our customers that depending on the level of detail of those search queries.
You start to enhance and maybe even replace them.
Some of the existing tool sets that are out there that are doing some of the basic editing and modification of of images and because customers can actually create the very specific thing theyre looking for.
It's early days on all of those things, but there's a lot of avenues that we're exploring and when you can leverage our platform.
And I know I think I dropped off when to answer the end of Andrew's part.
Part three of his question when you build a platform like we have have assembled the content breadth and depth that we have layer on the product innovation leverage our contributors and by the way our employees and many of which are.
Our best in class sales force that are sitting in the offices of our small medium and large scale clients.
Innovation happens new products happen and new opportunities happen. So it's still the first pitch of the first inning for for AI and it's use cases, but we believe that the shutterstock platform in the company broadly is well positioned to be first movers in whatever way. This goes.
Great. Thank you and I love that you used to I don't know its an answer because.
The only honest one.
Okay.
Yes.
Thank you and one moment for our next question.
Okay.
And our next question comes from the line of Nick <unk> with Redburn. Your line is open. Please go ahead.
Yes, thanks, very much indeed, just a quick question or two actually as we think about the impact upon five on enterprise and E. Commerce spend if you can give us any.
There on that thanks, very much for the organic figure and I'll just one of the questions earlier and the second question is just on the subscriber numbers being down a little bit versus Q3 can you talk around that and how you expect to return or what timeframe you expect to return eco Mr. Greg Thanks very much.
Sure. So just with respect upon 515 at the time of the acquisition would have been about 3% of the revenue of the business. So that's sort of the annual contribution.
That business is a little bit more heavily tilted towards E com than enterprise from our revenue distribution.
So a simple back of the envelope way to think about it would be a 2% contribution to the e-commerce business and a 1% contribution to the enterprise business.
<unk>.
I'm sorry, what was the second part of your question.
The second part of the question was just on subscribers.
586 in the fourth quarter I think the figure in the third quarter with 607, and so what's going on there in terms of the decline.
When do you think it will be turning that around.
Yes, I think.
The subscriber decline is really.
The year over year, there is obviously very significant sequential.
Year over year, a very significant subscriber growth there is a quarterly sequential subscriber decline the subscriber count is largely driven by <unk>.
Our e-commerce business and so some of the weakness that we've seen in Europe has really been the impetus for the subscriber decline, but one of the things Youll also notice is if you look at subscriber revenues subscriber revenues were up 9% year over year and the subscriber revenue number also takes into account the.
Scriber as we have in our enterprise business and the subscriber bookings in our enterprise business were up more than 20% year on year and so you have an interesting phenomenon, where you have smaller subscribers that were sequentially as a result of Europe , but you also have subscriber revenue.
<unk> that have been very very strong and thats really as a result of some of the larger subscribers that exist in our enterprise business. So an interesting.
Disparity between the two reporting channels vis vis our subscribers.
Or you think that.
Do you have a timeframe do you think that this is an economic impacted Europe's strictly that will turn around in the second half of the year, how do you think about that.
So.
We're being conservative at this point in time, you know I think as Paul mentioned, we're not baking into our guidance any kind of a return to growth in our ecommerce business. This.
This year itself, we'd rather take a bit of a wait and see attitude on that.
See multiple months of trends moving in the right direction in particular in Europe .
Sort of to make that call.
But things certainly did deteriorate from the third quarter to the fourth quarter and so we're sort of baking that in and carrying that forward and we're going to two.
Continue to focus on doing what we can do in terms of improving the value for our customers and growing our E. Commerce platform, we're bringing the right talent the right tools and really taking the right marketing strategy is to be able to grow that business.
That's great thanks very much.
Thank you.
Thank you.
And I would like to hand, the conference back over to Paul Hennessy for any closing remarks.
Great. Thanks.
We want to express our gratitude to our customers contributors and especially our employees for those of you on the call. Thanks for joining that this ends our other sands all the content for today's call.
Yes.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise and lower.
Johan during Q&A, you can dial star one one.
[music] okay.
Yes.
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