Shutterfly Earnings Preview: Enterprise Segment And New Products Could Drive Growth

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Shutterfly (NASDAQ:SFLY) is set to release their earnings for Q3 on October 27. After performing consistently over the last four quarters, it seems plausible that this quarter will be no different. Last quarter, the company posted revenues of $184 million which is an increase of about 16% year-over-year (which was within guidance range). Its consumer business grew by 14% whereas its enterprise business grew by a whopping 40%, largely due to the signing and starting of a major multi-year deal with an unnamed Fortune 50 company. Shutterfly also delivered adjusted EBITDA margins well above their guidance range for the quarter. The company also managed to increase its customer base by about 20% from both business segments. ((Shutterfly’s Q2 2015 Earnings Calls Transcript, www.seekingalpha.com))

See our complete analysis for Shutterfly

Enterprise Segment Could Boost Revenues:

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As mentioned previously, Shutterfly’s enterprise segment outperformed last quarter, growing by a mammoth 40%. EBITDA margins, too, grew at a high rate of 33% to reach $15.6 million. In keeping with their growth strategies, the company is continuing to innovate and invest more to create a better platform for the enterprise segment. In Q1, it had spent about $10 to $12 million on the enterprise technology platform. The company claims that it is these investments and innovations that have led to the signing of a nine-figure deal with a Fortune 50 company. Revenues from this deal will bear fruit this quarter, and it seems highly probable that the enterprise segment is going to grow in the mid double digits range this quarter.

The management revealed that they have only about five sales people bringing in business for the segment at the moment, but feel that once the new platform is launched, they would be able to hire a larger sales force which would help increase business many fold. So it seems that these investments are being made in the right direction, with the right strategies in mind. If everything goes to plan, we could see very large revenues being generated in the company’s enterprise segment.

GrooveBook And Newer Products Could Further Add To Revenue:

GrooveBook is a service that allows customers to print photo books directly from the photos saved on their mobile phones. As of the last quarter, Shuttefly’s latest acquisition has added about 7 million people to the company’s customer base. The product has also been very successful in penetrating a new demographic — the Millennials. What attracts the Millennials to GrooveBook is how economical the product is. For example, 100 prints cost anywhere between $22 to $23 (based on customizations) on Shutterfly’s flagship application. However, GrooveBook allows you the same number of prints — albeit of a lower quality — at a fraction of the cost ($2.99). By allowing the product to operate as a standalone application, Shutterfly hopes to achieve maximum market penetration.

Apart from this, the company also launched an application called TripPix over the last quarter. This product too, is aimed at Millennials. The application is a photo book app that lets you create a photo book of 20 pages with one picture per page. It offers a smaller format than other Shutterfly products (hence a reduced price tag). The company has realized the potential of the many niches in the market and is excited to offer such products to leverage their capabilities to expand beyond their core target audience (“affluent mom” population). This is, in fact, a brilliant strategy considering that Millennials now account for almost 75 million people of the American population, and are currently the largest demographic in the U.S. ((15 Economic Facts About Millennials, whitehouse.gov))

New Developments:

Recently, Shutterfly has partnered with the Alzheimer’s Association to help patients realize the therapeutic  potential in photographs. The company has actively worked to raise awareness, apart from hosting fundraising events. Additionally, the company has also made considerable donations towards the cause. Shutterfly has also built a special page on its website to provide families of Alzheimer patients with photo tips.

Apart from that, the company is actively trying to increase its offerings across all its segments. Apart from adding products like GrooveBook and TripPix, Shutterfly is working hard to make enhancements to its flagship cards and stationery product line up. They have added new categories, apart from the ones that already exist, like jewelry and serving trays. They have also added new wedding invitation suites and save-the-date stationery magnets.

The analyst estimate for the quarter stands currently at $1.39 EPS. ((What To Expect From Shutterfly’s Q3 Earnings, www.nasdaq.com)) Given the reasons above, it seems likely that we are going to see a good third quarter, driven primarily by the enterprise segment and applications aimed at Millennials.

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