Shutterfly (NASDAQ:SFLY) is expected to announce its Q4 FY11 earnings on February 8, 2011, but it recently lowered its Q4 FY11 revenue guidance due to an increase in competition as well as the uncertain economic environment. Following its lowered guidance for Q4, which has traditionally been its strongest quarter due to holiday spending driving its primary business – personalized products and services – its stock was trading about 20% below levels it $32 level in late November. After drifting at its recent lows, Shutterfly’s stock has recovered to its early December levels of $25-26.
Personalized photos, cards and albums account for nearly 90% of its total Trefis price estimate. Our current $40 Trefis price estimate for Shutterfly stands nearly 70% above its market price.
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Increasing competition weighing down on revenue and profit margins
Shutterfly competes primarily with services like HP’s (NYSE:HPQ) Snapfish, Kodak’s EasyShare Gallery, American Greetings’ Photoworks and Webshots brands, and even Apple (NASDAQ:AAPL), which recently ventured into this business with the Cards app on iOS. We expect a decline in revenue growth as well as increased margin pressures in the coming years, as a direct result of the increased competition.
We will be revising our Trefis price estimate for Shutterfly after the Q4 2011 earnings update in February. Stay tuned.