Shutterfly Q3 Earnings: Earnings Beat As The Company Prepares For The Holiday Season

Shutterfly‘s (NASDAQ:SFLY) stock traded up by almost 11.2% on Thursday after reporting better than expected results in its third quarter. Revenues were recorded at $187.3 million, a 12% increase over the third quarter of 2015 on the back of strong demand at the flagship Shutterfly and SBS businesses. Furthermore, the company has updated its guidance for Q4, with EPS expected to be in the range of about $2.57 to $2.86 and revenues in the range of $557 to $587 million. Shutterfly’s business is cyclical in nature and the company makes a major chunk of its revenues in the fourth quarter of the year. With the holiday season fast approaching, Shutterfly is expected to report a record Q4.

Shutterfly 3.0 Update:

Earlier in the year, the company had managed to integrate the This Life photo management service (now referred to as the all new Shutterfly Photos) into Shutterfly.com. This was an important move as customers tend to store billions of photos, and shifting existing customers to this new platform was essential to enhancing the experience. In the third quarter, the company reached its full year goal of migrating most of the company’s active users to this service.

Furthermore, Shutterfly successfully launched its new Shutterfly mobile apps on iOS and Android. The apps were shipped out in September, well ahead of the busy holiday season. The new apps are a significant improvement in several ways. Apart from a variety of services already prevalent, the apps now allow users to create and purchase cards and stationary (the company’s largest category by annual revenue). Additionally, both apps have enhanced the creation experience, allowing customers to create a card from scratch in less than a minute. The apps also allow customers to automatically upload their photos and to easily create personalised products.

The improved app experience counts as customers are moving rapidly to mobile devices. In the third quarter, customers downloaded the app more than a million times. Purchases made on the mobile platform increased at a double digit rate, representing almost 24% of overall Shutterfly brand revenue in the quarter. Going forward, we expect a higher revenue generation from this platform.

Shutterfly Prepares For The Peak Season:

As mentioned previously, Shutterfly gains most of its revenues during the peak holiday season in Q4. For this reason, the company has taken two important steps in preparation. From a technological standpoint, the company completed full program of stress testing the platform in anticipation of peak traffic. Furthermore, Shutterfly has increased its focus on improving customer experience as measured by speed, availability and ease of use.

This quarter, the company has hired many seasonal workers to complement the year-round team to best prepare for the holiday traffic. Additionally, earlier in the year, the company installed the new HP 10000 digital printers, which offer an increased quality, throughput and efficiency. All of the new equipment is tested and ready for the holiday period.

On the marketing front, Shutterfly launched its major holiday season campaign, spanning mobile, online, direct mail, television and other channels. Additionally, the company launched a multi-channel campaign featuring the all new Shutterfly Photos. These programs and the robust holiday campaign will help drive awareness and engagement in Q4.

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