Jefferies Issues Massive Downgrade On Shutterstock

Jefferies, which previously had a $90 price target and Buy on Shutterstock Inc SSTK, just cut the stock from Buy to Hold with a $39 price target, a price that's 13.5 percent above the current price of $34.35.

The downgrade was led by competitive pressures, particularly led by Adobe Systems Incorporated ADBE. Analyst Brian Fitzgerald said in the research note that Adobe "is more aggressively pursuing the space which makes us more uncertain about the outlook."

Year-to-date, Shutterstock has declined 50 percent, compared with a 12.6 percent increase in Adobe.

Despite the bearish downgrade, Fitzgerald said there were "meaningful positives in the quarter" that "still support the bull case." Notably, these positives include the fact that 22 percent of revenue is derived from the enterprise offering, revenue retention rates for the quarter were more than 100 percent, and paid downloads gained 14 percent with revenue per download up 13 percent.

Fitzgerald wondered if Shutterstock is tone deaf to Adobe's competition. In June, Adobe launched Adobe Stock with "discounted bundled pricing for stock imagery." Even in the face of that, "Shutterstock management has stated it will not lower its pricing to compete with Adobe," the note pointed out.

Jefferies' $39 price target reflects a 10-year discounted cash flow model.