What To Expect From Shutterfly’s Q3 Earnings

Shutterfly (NASDAQ:SFLY) will report its Q3 earnings on Tuesday, October 24. Due to the cyclical nature of the business, the company tends to generate losses in the first three quarters, while the fourth quarter helps recover a large portion of these losses.  While its revenue saw around 3% growth in the first half of the year, consensus estimates guide for slower growth in the third quarter. For the third quarter of 2017, the company’s expected total net revenue ranges between $187 million and $193 million and gross margins of 35.0% to 35.5%.

In the second quarter, the company managed to migrate its second largest consumer brand, Tiny Prints, to Shutterfly.com as a part of its restructuring initiatives. The company is expecting its restructuring initiatives to close by the end of the fiscal year. This should 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 run with the optimization of technology initiatives and a better focus on brands. The company’s restructuring reflected in the decline in margins.

Mobile App Penetration Crucial For Success

The percentage of revenues coming from mobile sources for the Shutterfly brand increased over the last few years, from 10% in 2014 to 25% in the middle of 2017. The company launched a new app in 2016, allowing users to create and purchase cards and stationery (the company’s largest category by annual revenue) in addition to 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.