Shutterfly‘s (NASDAQ:SFLY) stock price rose by 11% in the after-hours trading as the company managed to exceed the market expectations for both revenue and EPS, and completed the acquisition of Lifetouch, which led to revised guidance for the FY’18. After a decent performance in the previous year, Shutterfly sustained its growth trend in Q1, with nearly $200 million in quarterly revenue, an increase of nearly 4% 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. The completion of restructuring activity in 2017, 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 14% and improvement in operating margin by nearly 8 percentage points also indicate 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.
For the FY 2018, we expect net revenue of $1.3 billion, 9% above the previous year. We have created an interactive dashboard which shows our forecasts for the company’s revenues. You can modify the different revenue drivers to see how changes impact the company’s expected revenues.
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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 27% of the brand’s revenue, 400 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 (Shutterfly Business Solutions) showcased very strong results this time around. Revenues grew over 52% 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.