Shutterfly Surpasses Zacks Estimate - Analyst Blog


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Shutterfly Inc. ( SFLY ) has reported adjusted fourth-quarter 2011 of $1.48 per share, handily beating the Zacks Consensus Estimate of 82 cents and improving from the year-earlier earnings of $1.18.

On a GAAP basis, the earnings came in at 97 cents versus $1.09 in comparable quarter prior year and were slightly less than the company's guidance range of 98 cents to $1.03 per share. In full-fiscal 2011, earnings were 40 cents versus 59 cents in 2010.

In the quarter under review, net revenue increased 59% year over year to $263.8 million, thanks to continued growth in personalized products and services. In full-fiscal 2011, net revenue grew 54% year over year to $473.3 million.

Behind the Headline Numbers

Revenues from personalized products and services were $218.9 million in the quarter, up 77% over the prior-year quarter, while net print revenues were $40.3 million. Commercial Print revenue also saw a significant improvement to reach $4.6 million.

The total number of customers excluding Tiny Prints was 2.8 million in the quarter, reflecting an increase of 23% from the prior-year quarter. These customers generated about 4.6 million orders, up 24% year over year. Average order value was $43.05, down 3% year over year.

Gross profit margin declined 300 basis points to 59.0% from the prior-year quarter. The decline was due to steeper discounting in core products such as photo books, calendars and cards, and lower-than-expected unit volumes at Tiny Prints that muted cost efficiencies in manufacturing. Adjusted EBITDA was $89.3 million compared with $60.2 million in the prior-year quarter.


At quarter end, Shutterfly's cash and cash equivalents were $179.9 million, compared with $252.2 million at the end of December 2010.


For the first quarter of 2012, Shutterfly expects net revenue in the range of $83.0 million to $85.0 million. The company expects GAAP diluted net loss of 31 cents to 43 cents per share.

For fiscal 2012, Shutterfly expects net revenue to range between $550 million and $560 million. On a GAAP basis, earnings are estimated between 25 cents and 28 cents per share.

Our Take

Shutterfly is panning out with initiatives like product innovation, strategic partnerships with retailers and opportunistic acquisitions. Acquisitions of WMSG and Tiny Prints continue to strengthen the company's portfolio. Management sees several opportunities ahead as the social expression and personal publishing markets is still in a nascent stage.

However, challenging economic conditions and a fierce discounting war among the competitors are eating up the company's margins. The company faces competition from the likes of LookSmart Ltd. ( LOOK ), Snapfish owned by Hewlett-Packard Co. ( HPQ ) and Photoworks and Webshots brands of American Greetings Corp. ( AM ). Shutterfly will continue to discount deeper in first-quarter 2012 than the year-ago level that will hit the top and bottom lines. In addition, the upcoming quarter is seasonally weak.

Shutterfly currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

AMER GREETINGS ( AM ): Free Stock Analysis Report
HEWLETT PACKARD ( HPQ ): Free Stock Analysis Report
LOOKSMART LTD ( LOOK ): Free Stock Analysis Report
SHUTTERFLY INC ( SFLY ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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