Shutterfly Continues With Its Efforts In Building Shutterfly 3.0, and Expanding GrooveBook

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Shutterfly (NASDAQ:SFLY), the leading digital image publishing company, is slated to report its Q2 2015 earnings on July 29th. Shutterfly demonstrated a healthy first quarter on the back of  customer order growth for the consumer brands, complemented by a boost from the enterprise business. Shutterfly is currently trying to integrate all its brands on a common technological platform, in order to launch a more user friendly Shutterfly 3.0 (launch expected in 2016). The company believes that along with an increased appeal to users and potential users, the platform will also help better monetize its lesser known brands which will be available alongside its more popular brands. Shutterfly is also engaged in streamlining some of its processes to  enhance future performance and efficiency.

Shutterfly’s net revenues for Q1 2015 was $160 million. [1] Shutterfly’s 2014 acquisition, GrooveBook-a mobile photo book application subscription service, lowered its average order value in the first quarter by 14.5% to $28.86. This is because GrooveBook provides services at a lower price point than most of Shutterfly’s other brands. On the flip side, Shutterfly’s unique customers increased by 25% on a year-on-year basis to reach 3.2 million. We believe Shutterfly’s user base expansion at the cost of its lower AOV has continued in the second quarter, as well.

In 2014, Shutterfly posted $926 million in revenues, witnessing an 18% year on year growth. The growth received a further lift due to the company’s acquisition of  Groovebook in 2014 and full year results from 2013 acquisitions of MyPublisher and BorrowLenses. [2]

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We will update our $49 price estimate for Shutterfly post the Q1 2015 earnings release.

See our complete analysis for Shutterfly

GrooveBook’s Dual Role In Expanding Shutterfly’s User Base And Hence, Revenues

GrooveBook boosted the expansion of Shutterfly’s capabilities and helped its foray into newer demographics. The acquisition enhanced vertical integration. GroveBook prints photo books from photos saved in mobile phones, which was the next logical step for Shutterfly, after offering customers photo-printed cards, mementos, and accessories. GrooveBook had a user base of 7 million at the time of its acquisition in November 2014. [3]

Shutterfly has strategically positioned GrooveBook’s services as a stand-alone application, as well as an integrated functionality across its multiple brands. This helped the company in preserving Groovebook’s earlier user base and by offering a new service to Shutterfly’s existing users, the company is expected to gain a hitherto unexplored user base. GrooveBook services provide value for money. Hence, before the acquisition, Shutterfly’s normal services offered 100 prints for a month at a total cost of $22 to $23. Groovebook, on the other hand, provides the whole package for $2.99. [4] Though the cost reduction comes with lower quality, it is still attractive to the younger population with lower disposable income. Hence, Shutterfly is gaining a segment of revenues from a younger demography (while earlier, most of its customers were couples about to get married or mothers with young children). Hence, at the cost of a lesser average order per customer, Shutterfly is gaining a wider user base. As these young people mature and get married or have children, they’d be the company’s prospective clients for the other (more expensive) brands, as well.

Shutterfly’s Streamlining Initiatives And Cost Effective Measures

In its Q4 2014 earnings call, Shutterfly had announced the plans to construct Shutterfly 3.0, the next generation Shutterfly with a memory management service, connected to the personalized e-commerce solutions. Shutterfly 3.0 will integrate the services of its brands such as This Life, Tiny Prints, and Wedding Paper Divas, with the Shutterfly flagship brand, into a common platform. This consolidation will be cost effective for the company as all the investments for different brands can be made through a common technology platform, including cart, checkout, creation paths, login, address book, and media storage platforms. The platform will be more user friendly and simpler to manage. Also, the more popular brands will help to generate demand for the lesser known brands as they will all be on a common platform and hence more visible. This, in turn, will drive up monetization.

Shutterfly has discontinued its Treat brand from March 18th, due to a lack of a strong dedicated user base for this brand. The previous Treat users have been redirected to Shutterfly.com and are being 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. [5]

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Notes:
  1. Shutterfly Announces Q1 2015 Financial Results, Shutterfly Investor Relations, April 29, 2015 []
  2. Shutterfly’s Form 10-K For The Period Ending December 31, 2014, Shutterfly Investor Relations, February 18, 2015 []
  3. Shark Tank-Backed GrooveBook Acquired By Shutterfly For $14.5 Million, Tech Crunch, Nov 2013 []
  4. Shutterfly’s Q1 2015 Earnings Calls Transcript, Seeking Alpha, April 29, 2015 []
  5. Shutterfly Q4 2014 Earnings Call Transcript, Seeking Alpha, February 12, 2015 []