What To Expect From Shutterfly’s Q1 Earnings

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Shutterfly (NASDAQ:SFLY) will report its Q1 earnings on Tuesday, April 25. Due to the cyclical nature of the business, the company tends to make losses in the first three quarters, and the last quarter helps recover a large portion of these losses.  While its revenue saw around 7% growth in Q1 2016, consensus estimates guide for slower growth in the first quarter.

After disappointing Q4 2016 results, Shutterfly announced a significant restructuring of its consumer business. It is looking to improve its customer experience by consolidating its platform and creating an integrated offering. While this might create issues in the short term, we believe this strategy can drive growth over the long term with the optimization of technology initiatives and a better focus on brands.

Mobile App Penetration Crucial For Success

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The percentage of revenues coming from mobile sources for the Shutterfly brand increased over the last few years, from 10% in 2014 to 18% in 2016. The company launched a new app in 2016, allowing users to create and purchase cards and stationary (the company’s largest category by annual revenue) apart from a variety of other products and services. Furthermore, due to the ease of use and accessibility, the number of orders per customer may have increased.

Restructuring Could Drive Growth

Over the years, Shutterfly has expanded its product portfolio significantly. From cards to stationery to home decor, the company has several different brands to meet specific needs of customers and cater to separate segments. However, this has caused some operational difficulties, as each brand operates on a different technology platform and the demand for the existing products has decreased in recent years.

The company is likely to lose some customers in the near term as it migrates its brands to a new platform. Consequently, we expect slower growth in the first quarter. However, a simplified platform can ensure focus and technology optimization, which in turn could lead to consumer growth and cost savings over the long term. Please refer to our complete analysis for Shutterfly

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