Key Takeaways From Shutterfly’s Q4 Earnings

After a decent performance in the first three quarters of the year, Shutterfly (NASDAQ:SFLY) sustained its growth trend in Q4, with over $593 million in quarterly revenue, an increase of nearly 6% year-on-year. In line with our expectations, the growth in the company’s Shutterfly brand was partially offset by declining revenues in non-Shutterfly brands. As a part of its restructuring initiatives, the company shut down the MyPublishers and Wedding Paper Divas legacy site, opened the Shutterfly Wedding Shop and migrated its second largest consumer brand, Tiny Prints, to Shutterfly.com. This has improved 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 should drive some growth over the long run with the optimization of technology initiatives and a better focus on brands. The decline in the consumer business, due to the shutdown of non-Shutterfly brands, was reflected in the decline in gross margins. However, the decline in operating expenses by nearly 10% also indicates the success of the restructuring and platform consolidation strategy. The company will continue to make investments in improving the mobile and consumer platforms and infrastructure upgrades. We expect its margins to further improve in the near term as the business consolidation is likely to boost sales and reduce overhead costs.

Our price estimate for Shutterfly’s stock stands at $52. We expect nearly 4% growth in the company’s overall revenue for the year 2018, which is line with the company’s guidance. We have created an interactive dashboard where you can change the company’s forecast revenue, margins, and other key drivers to gauge how they would impact its expected results and valuation.

What Went Well For Shutterfly

• The company’s mobile app saw significant improvement, with added products and styles to improve product creation and purchases. The app saw over a million downloads for the third consecutive quarter, with mobile sales accounting for over 21% of the brand’s revenue, 465 basis points above the previous year’s quarter. Increased mobile penetration and strategic investments are bound to help this channel grow in the coming quarters.
• SBS showcased very strong results this time around. Revenues grew over 41% on the back of new client adds and increased orders from existing clients. With the help of the SBS technology platform, the company expects to scale the business further. Shutterfly is establishing itself as a major contender in the corporate stationery solutions business, and we expect the segment to show promising results throughout the year.