Shutterfly Acquires SeeHere.com Users But Expenses Remain A Concern

by Trefis Team
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Shutterfly
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Shutterfly (NASDAQ:SFLY), an online photo sharing, storage and printing service, has rescued users of yet another photo sharing website, SeeHere.com. Operated by Fujifilm North America Corporation, SeeHere.com will shut down next month.

During the intervening period, the customers will have the option to transfer their images over to Shutterfly.com. This comes after a similar transition of Kodak Gallery’s customers over to Shutterfly in the June-July period. The company had then added about 5 billion new photographs to its collection of 10 billion. We expect the company to incur additional expenses on technology equipment and software required to support the storage of SeeHere users’ accounts and photographs even as it makes progress toward setting up a new $60 million manufacturing facility in South Carolina. The additional expenditure could upend the gains the company expects in the fourth quarter on account of the holiday season.

Check out our complete analysis of Shutterfly

The transition of SeeHere customers to Shutterfly is expected to be completed by November 8, 2012. The SeeHere customers will receive a notification about the shutdown which will include instructions on how to transfer their images to Shutterfly.com. The customers who transfer their images will earn a $20 credit to their accounts, Shutterfly’s free and unlimited storage, and access to its other products and services. [1] Alternatively, they can choose to download their images to their computers. SeeHere.com has not provided any information on the number of its current users or the number of photographs in its collection.

In Q2 2012, Shutterfly incurred capital expenditure of $11.2 million on technology and software due to increased data storage requirement as Kodak Gallery customers migrated their accounts and photographs to Shutterfly. The arrangement with SeeHere could lead to additional costs of a similar scale in Q4, which would have a negative impact on the earnings during the holiday season.

Besides the customer acquisition costs, the company also has to bear costs of a new manufacturing facility it is setting up in Fort Mill, South Carolina. [2]  The new facility is expected to cost $60 million, of which $700,000 will be offset by an infrastructure improvement grant from the state government. [3] The expansion costs are expected to be spread over the next few quarters and will have a substantial impact on the earnings this year.

We have a $47 Trefis price estimate for Shutterfly, and we will revise it after the company releases its Q3 results on October 30, 2012. Personalized photos, cards and albums account for most of its value.

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Notes:
  1. Photo sharing service Shutterfly acquires SeeHere’s users, SocialTimes, October 2012 []
  2. Shutterfly expands east coast manufacturing operations, creating additional jobs in South Carolina, Shutterfly, September 2012 []
  3. Shutterfly Relocates Manufacturing Center to $60 Million Facility In Fort Mill, South Carolina, AreaDevelopment, September 2012 []
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