Shutterfly Demonstrates Moderate Growth, Promises A Better Future With Future Strategic Initiatives

+0.25%
Upside
50.97
Market
51.10
Trefis
SFLY: Shutterfly logo
SFLY
Shutterfly

Leading internet based image publishing service, Shutterfly (NASDAQ:SFLY) reported its Q4 2014 earnings on February 12th. Net revenues of $483.3 million (18% year-on-year growth) marked the 56th consecutive quarter of year-on-year increases. The topline performance was a consequence of customer order growth for the consumer brands, complemented by a boost from the enterprise business. Consumer net revenues for the quarter were $462.9 million, reflecting a 16% year-on-year rise. On the Enterprise Business side, SBS (Shutterfly Business Solutions) revenues grew more than 67% in the fourth quarter due to increased revenues and an expansion of the customer base. However, the gross profit margin was lower by 200 basis points year-on-year, partially driven by the enterprise segment continuing to grow more quickly than the consumer businesses, as well as by a decline in enterprise gross margins from enterprise job outsourcing during the peak fourth quarter holiday season. The consumer gross margin was impacted by an unfavorable product mix and increased costs due to the new manufacturing facilities. [1]

Other than the flagship Shutterfly brand, the popular brands in its portfolio are: ThisLife (photos and videos organizer), Tiny Prints (premium cards and stationery for all occasions), Treat (allows users to create personalized greeting cards), Wedding Paper Divas (wedding related stationery), BorrowLenses (online photo and video equipment rental service), GrooveBook (mobile photo-book service), and others.

We are in the process of updating our $45 price estimate for Shutterfly.

Relevant Articles
  1. Why Is Apollo Global Management Acquiring Shutterfly?
  2. Lifetouch Powers Shutterfly’s Q1 Results, And Will Continue To Drive Growth Going Forward
  3. Lifetouch Acquisition To Continue To Drive Top-Line Growth For Shutterfly In Q1
  4. Breaking Down Shutterfly’s Key Revenue Drivers
  5. Lifetouch Acquisition Should Continue To Drive Growth For Shutterfly
  6. Can Lifetouch Acquisition Drive Shutterfly’s Q4?

See our complete analysis for Shutterfly

Shutterfly’s Constant Product Introduction, Upgrades, And Initiatives Propelled Customer And Order Growth

Shutterfly is on a constant trajectory of improvement and innovation across its wide array of offerings. This led to increased mobile monetization and the expansion of the customer base. The transacting customer base for Q4 2014 was 5.7 million, translating into a 22% year-on-year growth. Orders grew by 25% year on year to 9.6 million, though the average order value (AOV) declined by 7% to $48.26. AOV is defined as total net revenues (excluding Enterprise) divided by total orders. The reason for the AOV decline was Shutterfly’s recent acquisition of GrooveBook as GrooveBook’s monthly subscription model drives significantly lower AOV. Excluding the effect of GrooveBook, Shutterfly’s fourth quarter AOV remained flat at $51.55 due to a combined effect of higher list prices and a shift to premium products, offset by deeper discounts and an increase in promotional offers to first time trial customers. Overall, management believes that the growth between the three metrics (customers, orders, and AOV) has been satisfactory. Some of the initiatives undertaken in the fourth quarter are discussed, as follows: [2]

  • The flagship Shutterfly brand introduced ¾ cards, personalized stamps, mix and match stationery sets, and popular premium card options . In the photobook line, new features were introduced, inlcuding cross sell capabilities, searchable design content and embellishment, and background and layout favoriting .
  • At its Tiny Prints brand, it expanded the collection of design forward luxury card options, introduced letter press and laser cut cards, increased the number of foil stamp colors to choose from, added five new envelope colors and introduced personalized postage stamps.
  • Shutterfly partnered with leading lifestyle brands (Nordstrom, Banana Republic, GAP, Pottery Barn, Southern Living), as well as mainstream retail brand (Macy’s, Kellogs, Babies ‘R’ Us, FisherPrice and McDonald’s), to launch innovative co-branded marketing campaigns.
  • The company worked with the key advertising partners, participating in new programs such as Facebook’s commerce program, Pinterest’s new partners program and Google’s cross device conversion program.

Shutterfly Plans On Utilizing GrooveBook To Serve Its Dual Business Purpose

Shutterfly acquired GrooveBook, a mobile photo book application subscription service, in November 2014. Grovebook prints up to 100 photos stored in the mobile phone, in a 4.5″ x 6.5″ GrooveBook format. It then mails the keepsake book to customers, for a monthly charge of $2.99. [3] GrooveBook has more than 1 million downloads, 200 million photo uploads and a subscriber base of around 7 million. [4]

Shutterfly tries to control its business chain from end to end. With its host of acquisitions, Shutterfly has transformed from a single brand market leader to a family of brands, which in turn helps it cross sell its products across brands.  In its Q4 2014 earnings call, Shutterfly’s management stated that they plan on both keeping GrooveBook as a stand alone application, as well as, expanding GrooveBook’s functionality across its multiple brands, such as the Shutterfly flagship brand and the Tiny Prints brands. Hence, though GrooveBook will be separate, its features will also be available across the other brands and sold at different price points and  to different sets of customers. [2]

Future Strategic Initiatives To Streamline Processes, Optimize Cost, And Increase Profitability

  • In the next 15-18 months,  Shutterfly plans to build the next generation of Shutterfly:  a memory management service, connected to the personalized e-commerce solutions. The next generation of Shutterfly (Shutterfly 3.0) will incorporate services of ThisLife directly into Shutterfly.com and consolidate both the services in a single mobile application. The Tiny Prints and Wedding Paper Divas platforms will also be migrated to the Shutterfly 3.0 platform, creating an integrated e-commerce solution. This consolidation will prevent the duplication of investments across two technology platforms and hence will be more cost efficient and less cumbersome.
  • Shutterfly has decided to discontinue its Treat brand from March 18th, due to a lack of a strong dedicated user base for this brand. However, the current users for Treat will be redirected to Shutterfly.com and will be served through the flagship brand.
  • Shutterfly’s Board of Directors has authorized the repurchase of up to $300 million of Shutterfly common stock. The repurchase program is in tandem with the long term capital allocation strategy that aims to maximize shareholder value while maintaining enough flexibility to continue with strategic investments and deals. [2]

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

 

Notes:
  1. Shutterfly Form 8-k, February 12, 2015 []
  2. Shutterfly Q4 2014 Earnings Call Transcript, Seeking Alpha, February 12, 2015 [] [] []
  3. Shutterfly Inc. Acquires GrooveBook, Shutterfly, Nov 2014 []
  4. Shark Tank-Backed GrooveBook Acquired By Shutterfly For $14.5 Million, Tech Crunch, Nov 2013 []