Shutterfly’s Growth Momentum Could Continue In The Coming Quarters

Shutterfly (NASDAQ:SFLY) performed strongly in Q2 this financial year and it seems like this growth could continue throughout the remainder of the year. In Q2 FY15, the company surpassed market expectations and delivered an adjusted EBITDA that was well beyond the guidance range set by the company. Shutterfly managed to grow by 14% in its consumer business ($141 million), and 40% in its enterprise business ($12.6 million). The reason for growth in the latter was primarily because of a new multi-year project for an unnamed Fortune 50 client. They even managed to increase customers and orders by 3 million and 5 million, respectively, which is a growth of about 20% across  all segments. ^[1] We could see such positive numbers going into the rest of the financial year as well, and here’s why:

See our complete analysis for Shutterfly

Shutterfly 3.0: 

Shutterfly 3.0 is a next generation memory management service that integrates other brands under the Shutterfly umbrella – TinyLife, Tiny Prints, and Wedding Paper Divas – into one common platform. This move is not only cost effective, but could also improve visibility of these lesser-known brands, thereby increasing sales. By placing all the brands on a common technological platform, Shutterfly can better consolidate investments and reduce costs sufficiently. Apart from all this, the platform will also provide personalized e-commerce capabilities.

The company is also hoping that the newly designed, easy to use Shutterfly 3.0 service, will help higher mobile penetration, which could represent higher sales. At present, the company gets about 14% of its orders via mobile phones. In the coming quarters, Shutterfly hopes to increase this number. The company also plans to introduce mobile applications that will help customers build and create photo books or greeting cards on the phone itself. This presents a great move given the current mobile e-commerce trends. Data from the newly published 2016 Mobile 500 projects that mobile e-commerce accounts for about 29.7% of the total e-commerce activity in the U.S., up from 24.6% last year. Therefore, it is a great idea to try and tap into this expanding opportunity. ^[2] If correctly handled, the company could see a gain in revenues.

The acquisition of GrooveBook could also help achieve greater mobile penetration.

Added Revenues From Groovebook And Other Services Aimed At Millennials:

GrooveBook is a service that allows customers to print photo books directly from the photos saved on their mobile phones. This acquisition has allowed Shutterfly to expand its capabilities greatly. Apart from instantly adding about 7 million customers to the company’s customer base, the service has also helped Shutterfly penetrate varied demographics – more so, the Millennials. This is primarily due to the fact that GrooveBook is more economical than the other services offered by Shutterfly. For instance, before the acquisition of the service, Shutterfly delivered a 100 prints for anywhere between $22 to $23. However, GrooveBook delivers the same amount of prints for a fraction of the cost, at $2.99. ^[3] This is the reason why the company has decided to leave GrooveBook to operate as a stand-alone application, which will help the company retain its old user base as well as provide its flagship customers with an added service.

Millennials – accounting for about 75 million Americans (one third of the population) – are now the largest demographic in the U.S.  Creating more applications aimed at this demographic could greatly help the top-line of the company. ^[4] In keeping with this strategy of catering to the younger demographic, Shutterfly had also introduced TripPix in the second quarter. TripPix is also a photo book printing application, but is different from GrooveBook in that it is one picture a page, with a total of 20 pages, thereby offering a smaller format. With efficient marketing strategies targeting the younger demographic, Shutterfly could maximize sales of these products and thereby revenues.

New Offerings:

Shutterfly has recently partnered up with the Alzheimer’s Association to help patients realize the benefits of using photos as therapy. The partnership began with a donation made to Alzheimer’s care, support and research programs. Shutterfly is also actively involved in creating awareness and fundraising. The company has also built a special page on their website to provide photo tips to families of patients with the disease.

Additionally, the company has also tried to expand its offerings in its consumer and enterprise segments. For the enterprise segment specifically, Shutterfly is investing in creating an enterprise-grade platform, along with  a new media storage platform. They also plan on moving to a new and more sophisticated data warehouse. For consumers, as already mentioned, the company has launched TripPix. The company has also made some enhancements to its flagship cards and stationery product line-up. It has added new products like wedding invitation suites and save-the-date stationery magnets. Apart from product additions, Shutterfly has also added new categories which include jewelry and serving trays. ^[5]

The company expects revenues of $1.04 to $1.06 billion (representing a 13% to 15% year-on-year growth) and an adjusted EBITDA to lie between $186 to $194 million (representing about an 18% growth year-on-year). If things go as per strategy, Shutterfly could be seen boasting good numbers in the coming quarters as well, keeping within, or surpassing, the guidance.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. Shutterfly’s Q2 2015 Earnings Calls Transcript, Seeking Alpha [↩]
2. Mobile E-commerce Is Now 30% Of All U.S. E-commerce, internetretailer.com [↩]
3. Shutterfly Demonstrated a Healthy Second Quarter, trefis.com [↩]
4. 15 Economic Facts About Millennials, whitehouse.gov [↩]
5. Shutterfly Delivers Strong Results, seekingalpha.com [↩]