Shutterstock falls as JMP Securities downgrades, citing increased competition from AI

Shutterstock (NYSE:SSTK) shares fell on Monday as investment firm JMP Securities downgraded the stock photography provider, citing an increase in competition from generative artificial intelligence in the company’s core areas.

Analyst Andrew Boone lowered his rating on Shutterstock (SSTK) shares to market perform from market outperform, noting that while generative AI is still “early,” as awareness of it continues to increase and images become more realistic, it could be a huge headwind for the company.

“Text-to-image generative AI reduces the value of Shutterstock’s vast media library of 424M images and 27M videos,” Boone wrote in a note to clients. “With the ability to generate infinite iterations of images through text prompts, we believe the value of Shutterstock’s massive media supply is diminished.”

Boone added that the cost of compute could be less than 1 cent once a AI model is trained and impact the more than $170M in loyalty payouts that Shutterstock (SSTK) hands out to contributors.

The analyst noted that private companies in the generative AI space are “well funded” and some of them have started to commercialize their platforms. Shutterstock (SSTK) is not standing still having recently partnered with OpenAI, which raised $1B in funding from Microsoft (MSFT) in 2019, but it’s still likely that there will be a shift in market share away from marketplaces, Boone posited.

“While Shutterstock is integrating with OpenAI to offer text-to-image generative AI on its site, we still expect some portion of customers that historically needed stock content to go directly to text-to-image generators, pulling demand away from Shutterstock,” the analyst explained.

Late last month, Shutterstock (SSTK) cut its revenue outlook for fiscal 2022 in conjunction to announcing the deal with OpenAI.

Analysts are mostly positive on Shutterstock (SSTK). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts also rate it a BUY. On the other hand, Seeking Alpha’s quant system, which consistently beats the market, rates SSTK a HOLD.