Shutterfly Earnings Preview: Holiday Demand Could Drive Revenues This Quarter

Shutterfly (NASDAQ:SFLY) is all set to report earnings for Q4 on February 3rd. Historically, the company tends to incur losses in the first three quarters of the year. However, it enjoys better revenues in the fourth quarter due to higher holiday sales. The California based company expects to earn anywhere between $3.56 to $3.74 per share this time around. ^[1] However, there a possibility that the earnings could be impacted negatively due to the company’s ongoing expansion plans. Furthermore, Shutterfly could be adversely affected by stiff competition from more established and well resourced companies like Alphabet and Facebook that have been actively pursuing strategic acquisitions in the technology and internet space.

That being said though, these aforementioned acquisitions have definitely helped the company improve operations. During the year, it opened new state of the art manufacturing facilities, while improving existing facilities. Additionally, new acquisitions and affordable pricing could also help boost revenues in the quarter.

Financial Highlights from Q3:

• The company posted revenues of $167 million, which an increase of about 18% year over year.
• GAAP net loss for the quarter came in at $63.1 million or $1.73 per share. This was mostly due to a tax reversal the company incurred during the quarter.
• Free cash flow came in at a negative $51.7 million compared to a negative $72.3 million in the same period last year. ((Shutterfly’s Q3 2015 Earnings Call Transcript, www.seekingalpha.com))

Q4 is a very important important quarter for the company and the year’s performance is based significantly on whether it can deliver in the holiday season. In the last earnings call, the management announced that it expects revenues for the year to lie between $528.7 million to $548.7 million, while operating income will fall in the $128.8 million to $139.5 million range.

Holiday Demand Could Drive Sales This Quarter:

In the previous quarter, Shutterfly management reassured investors that it has taken adequate steps and precautions to ensure maximum returns from the holiday season. The company had recently opened new consolidated facilities, most notably the one in Tempe, Arizona. This was done to better efficiency and cut costs while increasing output greatly. Additionally, Shutterfly also introduced many holiday themed products to cater to the holiday demand. For example, at Tiny Prints, which is the company’s premium stationary brand, the company introduced a host of new holiday themed greeting cards. The management feels that these cards stand out among competitors and will, hence, garner greater sales.

Furthermore, the Shutterfly has also increased marketing in an attempt to stand out in a crowded and saturated market. For instance, the company redefined their email marketing strategies to improve personalisation and relevance. In addition, it has also decided to up their marketing efforts on TV and radio in the quarter. During the quarter, Shutterfly had also released its largest catalogue to date, for its Shutterfly and Tiny Prints products. This is bound to increase reach and awareness of its products and services, which could positively impact revenues.

Given the holiday demand and the recent restructuring, it seems highly plausible that Shutterfly could post great figures this quarter. Apart from that, the recent deal signed with a Fortune 50 company can help boost the Enterprise segment’s revenues over the next few quarters. Things could be looking up for the California based company as we move into 2016.

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1. What’s in Store For Shutterfly in Q4 Earnings, www.zacks.com [↩]