Shutterfly Caps Off The Year With A Strong Quarter

by Trefis Team
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Shutterfly (NASDAQ:SFLY) reported its FY 2012 earnings on February 5. Revenues increased 35% y-o-y to $641 million. The revenue growth can be attributed to robust performance of the consumer segment. The acquisition of technology companies, Photoccino and Penguin Digital in 2012, helped the company improve its services, which helped the number of unique transacting customers grow to 7.1 million users, a 30% growth over last year.

The company reiterated its focus will be on the mobile platform in 2013, which we expect will drive further growth in unique transacting customers over the forecast period. The enterprise segment surprised with a strong performance as revenues grew almost 100% to $27 million. The company added new clients like United Health group and expanded existing relationships with Dell and AT&T during the year. The revenues growth can be attributed to a growth in orders from existing clients. Increased utilization of existing facilities saw the company improve its gross margins from 53.6% in 2011 to 54% in 2012. We expect the margins to decline marginally over the forecast period as the company shifts to a new production facility with more capacity in 2013.

Shutterfly competes primarily with services like HP’s (NYSE:HPQ) Snapfish, American Greetings’ Photoworks and Webshots brands, and Apple‘s (NASDAQ:AAPL) Cards app on iOS.

Customer Growth Continues

Shutterfly continues to add new customers organically as well as through acquisitions. At the end of 2012, its transacting customer base stood at 7.1 million, a 30% year-over-year increase. The strong growth largely organic, was the result of a successful marketing campaign. The growth was also helped by the acquisition of customers from the now defunct Kodak Gallery. The growth in transacting customers and introduction of new products also resulted in a 30% growth in the number of orders processed.

The average order value was largely unchanged,as a result of combined benefits of a number of promotional and pricing strategies, and a better-than-expected first time order value by the newly acquired Kodak customers. We expect the same to grow marginally over the forecast period, a result of the product mix, which includes low priced products such as greeting cards priced at $2 each. The larger volumes of low priced items is expected to mitigate the effect of introduction of premium priced products.

Enterprise Business Grows Strongly

The company reported strong revenue growth from the enterprise/commercial printing segment, which doubled its revenues to $27 million. The strong performance was driven by growth in the number orders, from existing clients as wells as new client additions. As a result of which Enterprise revenues accounted for 4% of total revenues, up from 3% last year.

We have a $40 Trefis price estimate for Shutterfly, which is 23% above the market price.

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