Shutterfly (NASDAQ:SFLY) reported its earnings on November 1, with revenues increasing 29% y-o-y to $98.5 million. The revenue growth can be attributed to robust performance of the enterprise segment in the lowest seasonal quarter, customer & transaction growth across all four brands and the acquisition of customers from the erstwhile Kodak gallery. Despite the increase in revenues, it still posted a net loss of $10.5 million primarily due to costs associated with migration of Kodak customers and the increased cost structure of recent acquisition of Photoccino.
Shutterfly competes primarily with services like HP’s (NYSE:HPQ) Snapfish, American Greetings’ Photoworks and Webshots brands, and even Apple‘s (NASDAQ:AAPL) Cards app on iOS.
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Enterprise business grows strongly
The company reported strong revenue growth from the Enterprise/Commercial Printing segment which doubled its revenues to $8.1 million. The strong performance was driven by growth in the number of existing clients as a result of which Enterprise revenues accounted for 8% of total revenues, up from 5% during same quarter last year.
Average Price Per Order take a hit as a result of product mix
This quarter’s average order value was $25.06, down 11% from the same period last year primarily due to marketing promotions designed to engage new Photo Book users and Kodak customers for the first time, a higher product mix of print orders from new Kodak Gallery customers, as well as strong growth in Treat orders.
Expenses continue to grow
The company reported that the capital expenditures during the quarter totaled $20.4 million. This includes $6.8 million for technology equipment and software which can largely be attributed to additional data storage requirement related to migration of Kodak Gallery customers accounts and data. The company expects to triple the capacity of its East Coast production facility next year at approximately the same annual lease cost. The close location of the new facility from the current Charlotte facility means that it would be able to successfully leverage its existing workforce and cut down on costs. It expects to make improvements on its capital expenditures starting end of this year.
Sales and marketing expenses totaled $29.6 million in the quarter, representing 30% of net revenues compared to 33% in Q3 of last year. The figures reflect a larger marketing team which is working increasingly efficiently. The company also shifted some of its marketing investments into Q4 which are related to its TV campaign and other online/offline promotions. We expect these to be significant and to have an impact on Q4 results.
We are updating our $47 Trefis price estimate for Shutterfly.
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