We remain Neutral on Calif.-based personalized photo services
). While we view the company's second quarter results, increase
in revenue guidance twice this calendar year and frequent
acquisitions favorably, its highly seasonal business structure
keeps us on the sidelines at the current level.
Why the Reiteration?
On Jul 31, 2013, Shutterfly posted second-quarter 2013 loss of 29
cents per share, which was substantially narrower than the Zacks
Consensus Estimate of a loss of 54 cents per share and management
guided range of a loss of 55-58 cents per share. The results were
driven by better-than-expected revenues in the quarter.
Revenues in the quarter got a boost from the strong performance
of the Consumer and Enterprise segments and soared 34.8% to
$133.5 million. Revenues also beat management's guidance range of
$118.0 million-$121.2 million. Encouraged by the
better-than-anticipated performance, Shutterfly raised its
expectation for net revenue in 2013 for the second time to a
range of $776.0-$781.0 million from prior expectations of
Shutterfly is focused on growing its business through strategic
partnerships with retailers and through acquisitions. Some of
Shutterfly's latest acquisitions include MyPublisher, one of the
pioneers in the photo book industry in May 2013; ThisLife, which
offers a cloud-based solution for protecting, organizing and
sharing photos and videos in Jan 2013; Fuji Film's photo creating
and sharing website SeeHere.com in Oct 2012 and Kodak Gallery
online photo services (formerly known as Ofoto) in May 2012.
Not only this, management is also striving hard to shore up its
commercial printing business. The recent takeover of Phoenix,
Ariz.-based R&R Images -- engaged in premium stationery
printing and product design - is in line with the company's
Despite these enthusiastic facts, some concerns prevent us from
being too optimistic on the stock. Shutterfly's business is
highly seasonal. The company generates a large portion of its
earnings during the fourth quarter of every year, which is the
holiday season. This leads to relatively soft sales in the other
Further, Shutterfly's performance reflects the trend in leisure
and recreational services industry. Hence, a slower macroeconomic
recovery ahead of tapering, elections and Syria might pose threat
to the company's business.
Shutterfly currently carries a Zacks Rank #3 (Hold). Other
players in the Internet content industry, which look attractive
at current levels, include
WebMD Health Corp.
). While WebMD Health and Yandex carry a Zacks Rank #1 (Strong
Buy), Brightcove retains a Zacks Rank #2 (Buy).
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