Will Shutterfly (SFLY) Disappoint this Earnings Season? - Analyst Blog

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Shutterfly, Inc. ( SFLY ) is set to report second quarter 2014 results on Jul 30, 2014. Last quarter, this online photo-printing service provider posted a positive earnings surprise of 11.8%. Let's see how things are shaping up for this announcement.

Factors to Consider This Quarter

Shutterfly's business is seasonal in nature and the company generally posts losses in the first three quarters of the year.

In the second quarter, the company expects to post loss per share in the range of 65 cents to 68 cents per share, higher than 29 cents recorded in the comparable period last year. Apart from seasonality, termination of the Costco partnership in 2013, higher expenses and lower demand have been hurting the company's results. Besides this, depreciation, labor, and equipment costs for expansion and acquisition of manufacturing facilities are also adversely impacting profitability.

Moreover, the company faces stiff competition from big 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 acquisitions and would eventually eat into Shutterfly's market share.

Huge losses have compelled the company to look for a buyer for itself. Shutterfly has hired boutique investment bank Qatalyst Partners LLC for the same. Private-equity firms as well as e-commerce and web storage companies are expected to bid for the company. However, the company is in the early stages of seeking a buyer and might not reach a transaction.

Earnings Whispers?

Our proven model does not conclusively show that Shutterfly will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP:   Shutterfly's ESP is -1.35% since the Most Accurate estimate stands at a loss of 75 cents per share, while the Zacks Consensus Estimate is pegged at a loss of 74 cents.

Zacks Rank #3 (Hold): Shutterfly's Zacks Rank #3 when combined with a negative earnings ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Other stocks in the Internet content and computer and technology sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Angie's List, Inc. ( ANGI ), with Earnings ESP of +33.3% and a Zacks Rank #3.

Baidu, Inc. ( BIDU ), with Earnings ESP of +8.80% and a Zacks Rank #2 (Buy).

iGATE Corporation ( IGTE ), with Earnings ESP of +1.92% and a Zacks Rank #3.


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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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: BIDU , SFLY , IGTE , ANGI

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