Here Are The Key Drivers Of Growth For Shutterfly

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Shutterfly‘s (NASDAQ:SFLY) posted strong performance in 2015, when it recorded a 15% year-on-year increase in net revenues.  It also reached the milestone of $1 billion in revenues. Even better, this level of performance continues in 2016. In Q2 2016, the company met or exceeded expectations on most major metrics, recording a nearly 10% growth in revenues and around 8% growth in gross profit compared to the same quarter in the previous year. (Read Shutterfly Q2 Earnings: Quarterly Losses Narrower Than Expected.) The company is working on adding next generation features to Shutterfly, focusing on creating a new photo management solution by integrating it with its “ThisLife” technology. This new platform, called “All New Shutterfly”, can become the next growth driver for the company.  Shutterfly is also building its integrated e-commerce capability, focusing on an enhanced mobile app with a broader product catalog , which can potentially increase its usage. We believe product innovations and strategic marketing partnerships will also be critical for Shutterfly’s growth in the future.

All New Shutterfly

Shutterfly is building a new platform with additional features, integrating its ThisLife technology with Shutterfly to provide a more robust solution to its customers. This platform is called “All New Shutterfly” and it is already functional.  The company hopes to move most of its active users onto this platform by the fourth quarter. This platform includes a modern intuitive interface, facial recognition technology and simple yet powerful upload tools for photos, all of which are aimed at allowing consumers to create keepsakes and gifts easily and quickly. The company has made significant investments in this platform, which should drive customer growth in future.  According to our estimates, the total number of customers and orders per customer are two critical drivers of Shutterfly’s revenues and this platform can ensure steady growth in both these metrics.

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Photo management is a critical component of the All New Shutterfly platform and the company has invested in this service for existing customers.  In all, it holds a strong potential for Shutterfly to pursue the broader business of photo management and value added services, adding to its existing revenue streams.

Integrated E commerce Capabilities

Shuttefly is aggressively working on expanding its mobile footprint and promotions have ensured that its mobile app recently reached a milestone of 1 million downloads.  As much as 19% of the Shutterfly brand revenue now comes from mobile devices. The company is working towards building an integrated e-commerce capability with a focus on mobile devices. Its new app, which is likely to be launched later this year, will make it easier for consumers to create gifts through mobile devices with a better product catalog and enhanced features. An increasing number of consumers are moving towards mobile devices, in place of traditional desktops and PCs.  Several international economies are even emerging as “mobile first” countries.  Accordingly, we believe investment in a robust mobile app can drive revenues for Shutterfly over the long term.

Innovation and Strategic Tie ups

Constant innovation is critical for Shutterfly to keep consumer interests alive and maintain a competitive edge.  In Q2 2016, the company launched its new statement gifts category by introducing non-photo personalized gifts. During the same period it also entered into new partnerships with Avis and Budget aimed at increasing engagement with holiday travellers who rent cars. It also partnered with Pet Smart to target pet parents looking to preserve memories. We believe a broader portfolio of gifts can be a driver for Shutterfly to attract more customers and increase orders per customer. Similarly, marketing efforts and tie ups with key players can also lead to rapid acquisition of customers and drive growth in the long term.

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