Shutterfly (NASDAQ:SFLY) will announce its Q4 FY11 earnings results on February 1. Fourth quarter is the most crucial quarter for Shutterfly due to the holiday season when it generates more revenue compared to the other three quarters combined. Shutterfly recently slashed its Q4 revenue and earnings estimates, citing uncertain economic environment and heavy competitor discounting throughout the peak holiday shopping season. Following the announcement, the stock crashed. The company is currently projecting Q4 revenues between$259 million and $264 million, much lower than its earlier expectation. Shutterfly competes primarily with services like HP’s (NYSE:HPQ) Snapfish, Kodak’s EasyShare Gallery, American Greetings’ Photoworks and Webshots brands, and even Apple (NASDAQ:AAPL) that ventured into this business lately, with its new Cards app on iOS.
Shutterfly had around 1.4 million active customers in Q3 2011. We expect this number to increase to around 2.6 million this quarter, adding up to a total of 6.7 million active customers for the whole of 2011. However, given the slashed guidance and increasing competition in the space, the actual numbers could be much lower. Any decline in customer growth could result in a decline throughout our forecast period. You can tweak the chart below to see how a decline in the number of transacting customers will affect the Trefis price estimate for Shutterfly.
Increase in Average Order Value
Generally, there is a jump in the average order value in the fourth quarter every year. The average order value was $24 in Q3 2011, but we expect it to be much higher in the Q4 holiday season, bringing its average order value for 2011 to $33. However, the actual average price per order could be slightly lower, given the recent price wars by its competitors. These price cuts and discounts may continue in the coming years, and lead to a decline in our projected growth. You can tweak this chart to see how the average order value impacts the Trefis price estimate for Shutterfly.
We currently have a $40 price estimate for Shutterfly, which is nearly 70% above its market price. We will be updating our model based on Shutterfly’s Q4 numbers soon after the earnings release.