Lifetouch Acquisition Should Continue To Drive Growth For Shutterfly

Shutterfly sustained its robust growth momentum as it reported its Q4 earnings on February 5, ending 2018 on a strong note. The company reported a solid 60% increase in revenue to just under $950 million in the quarter. As expected, much of this growth was driven by the better-than-expected performance from the Lifetouch acquisition and strong performance of its Business Solutions segment, partially offset by lower than expected performance from its Customer segment. The Lifetouch acquisition, coupled with the efficiencies from the consolidation and higher sales and marketing expenses, weighed on the company’s operating margin. We expect the integration of Lifetouch, along with the launch of new products and other strategic initiatives to optimize its technology, to drive its value in the coming quarters.

We have a price estimate of $57 per share for the company, which is higher than its current market price. We are in the process of updating our model to account for company’s FY’18 results. View our interactive dashboard – what to expect from Shutterfly in 2019 – and modify the key drivers to visualize their impact on its valuation. Below we discuss some of the key factors that are likely to impact the company’s earnings.

Shutterfly sustained its growth momentum in Q4, driven by robust performance from Lifetouch and its Business Solutions segment. The revenues for the quarter came in at just under $950 million (+60% y-o-y), and while this is a significant improvement, it was below the market’s as well as company expectations. This was largely due to the subpar performance from its Shutterfly Consumer segment – due to the disappointing performance of print and holiday cards. A noteworthy highlight in Q4 was a significant uptick in mobile purchases and we expect this trend to carry into 2019. Further, the company believes this to be the cost effective mechanisms to acquire new customers.  In addition, we expect the Lifetouch acquisition to re-accelerate its customer growth and consequently holds great potential in the near term. The integration of Lifetouch has provided access to more than 10 million purchasing households, which are its ideal target customers. As a result, the larger customer base should likely improve its revenue growth in the coming quarters.

Going forward, the company plans to expand its product and category range – 60 new products., drive mobile innovation, simplify the process of creating and purchasing products, and optimize its pricing and promotions. These initiatives are expected to contribute to its customer growth and drive its value in the near term. The aforementioned factors – coupled with strategic partnerships with retailers such as Target and CVS – should help the company boost its order count over the long run.

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