California-based online digital photo storage and printing
) reportedly attracted bids from a number of private equity firms
including Hellman & Friedman LLC, Bain Capital LLC and Silver
Lake Partners LP.
Market rumors indicate that the photo storage company might be
valued at roughly $2 billion in sale. Shutterfly has been looking
for a buyer for some time now and had reportedly hired boutique
investment bank Qatalyst Partners LLC in July this year to find
buyers. Further, reports indicate that a deal could be completed in
Shutterfly's main business allows customers to store photos
digitally and make printed albums, posters, coffee mugs and other
products using them. Thus, the company was considering
private-equity firms, e-Commerce companies and web storage
businesses for a possible divestment.
We believe Shutterfly is principally attractive to private equity
firms because of the massive inventory of Kodak Gallery images it
bought in a bankruptcy auction from Eastman Kodak Co. in 2012.
According to media reports, the deal added nearly nine billion
images to Shutterfly's photo library.
The decision to sell the company comes in the wake of back-to-back
losses incurred in the first two quarters of 2014. Shutterfly's
business is highly seasonal and the company generally posts losses
in the first three quarters of the year.
Other than seasonality, termination of the Costco partnership in
2013 affected Shutterfly's profits to a great extent. Apart from
this, depreciation, labor and equipment costs for expansion and
acquisition of manufacturing facilities further dented
profitability. In fact, the company expects the bottom line in the
range of a loss of 11 cents to earnings of 20 cents for 2014,
compared with 38 cents earned in 2013.
Moreover, the company faces stiff competition from major players
such as Google Inc. and Facebook, Inc. (
) who have been acquiring companies in the technology and Internet
space. These companies have better and effective resources to
leverage these buyouts and would eventually eat into Shutterfly's
market share. Further, Hewlett-Packard Company's (
) Snapfish and Apple Inc.'s (
) iPhoto make it difficult for Shutterfly to gain market share.
Shutterfly, currently, has a Zacks Rank #3 (Hold).
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