Shutterfly Q2 Earnings: Quarterly Loss Narrower Than Expected

Shutterfly (NASDAQ:SFLY) performed well this quarter, beating guidance and analyst estimates in terms of earnings and revenues. Revenues were driven by the Consumer and Shutterfly Business Solutions (SBS) brands. However, the strong performance was partially offset by dampened growth at Tiny Prints and Wedding Paper Divas. The company also made great strides this quarter towards the integration of Shutterfly 3.0. Going forward, we expect the brand to continue this momentum through the year, ending the year on the high note roundabout the holiday season. ^[1]

Key Highlights:

• The company managed to expand its mobile footprint this quarter by an additional 1 million app downloads, mostly due to the success of the Unlimited Free Prints campaign. The app continues to increase business for the Shutterfly brand spurred on by such promotions and marketing strategies. This quarter alone, the company managed to grow the mobile related revenues in the double digits, representing 19% of the total brand revenue. Increased mobile penetration and strategic investments are bound to help this business channel grow in the coming quarters.
• Shutterfly is trying hard to reduce unnecessary costs which could have a major positive impact on future earnings. To this effect, the company is working to increase automation in all of its printing capabilities and reduce the amount of temporary labor required. To this effect, the management recently struck a deal with HP to lease a number of state-of-the-art four-color digital printers. Additionally, these printers will enable high quality prints with greater cost efficiency.
• SBS showcased very strong results this time around. Revenues almost doubled on the back of new client adds and increased orders from existing clients. A major deal (signed last year) with a Fortune 50 company is showing great rewards and will continue to do so for the remainder of the deal duration. Shutterfly is establishing itself as a major contender in the corporate stationery solutions business and we expect the segment to show promising results throughout the year.
• Shutterfly 3.0 is on track and the company has highlighted two major goals in this direction for 2016. The first goal is to add a variety of functionalities and features on to the existing platform. The second goal is to establish and integrate e-commerce capabilities on the platform. This would provide customers with a complete end-to-end shopping solution from exploring to buying the products. We believe that Shutterfly 3.0 has the potential to help boost the company’s customer base, loyalty and, thereby, sales.
• Revenues and EBITDA were adversely affected by a one-time flash deferred revenue catch up of $7.5 million. Excluding the catch up, revenues increased 16% year on year as EBITDA increased 58%.

Notes:

1. Shutterfly Q2 Earnings Call Transcript, www.seekingalpha.com [↩]