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Shutterfly Progresses with Innovations Despite Incurring Loss - Analyst Blog

Posted: 7/2/2014 3:58:00 PM
Referenced Stocks: SFLY;YELP;DL;EVDY

On Jun 27, 2014, we issued an updated research report on Shutterfly, Inc. ( SFLY ).

On Apr 30, this leading provider of personalized products posted first quarter 2014 results. Loss of 82 cents compared favorably with the Zacks Consensus Estimate of a loss of 93 cents and management's expectation of a loss of 86 cents to 92 cents per share, owing to a better-than-expected top line. However, the loss was wider than the year-ago loss of 33 cents due to higher expenses.

Net revenue increased 17.5% year over year to $137.1 million and was ahead of the Zacks Consensus Estimate by approximately 1.6%, attributable to the strong performance of the Consumer segment. Revenues also beat management's guidance range of $132.0-$135.0 million.

In the quarter, the total number of customers was 2.6 million, reflecting an increase of 13.7% from the prior-year quarter. Total orders generated were 3.9 million, up 13.0% year over year. Average order value was $33.76, up 5.0% year over year, driven by promotional strategies and integrated marketing campaigns adopted by the company.

Overall, we are encouraged with the company's innovation program. The company has introduced several exciting new products, styles, and premium options to its existing portfolio of high-quality personalized products and brands. These continued innovations and investments in consumer oriented programs are expected to improved traffic trends going forward, thereby adding to the top and bottom lines.

Further, Shutterfly is geared to beef up its mobile-related offerings with smartphones and tablets dominating the market.  Apart from new product offerings, the company intends to improve operational efficiency and open new manufacturing facilities or consolidate the existing ones for future expansion.

Moreover, the company is focused on increasing manufacturing and operational capabilities and expanding its portfolio through strategic acquisitions. We are encouraged by the company's opportunistic acquisitions and improved offerings in the growing mobile e-commerce segment.

However, the company expects to report a loss in 2014 due to the termination of the Costco partnership. Though the company intends to reinvest funds elsewhere, it does not expect to generate the same efficiencies in other channels as in the Costco partnership. Also, depreciation and equipment costs for expansion and acquisition of manufacturing facilities are expected to affect profitability in 2014.

The company presently has a Zacks Rank #3 (Hold). Some better ranked stocks in the sector include Yelp, Inc. ( YELP ), China Distance Education Holdings Limited ( DL ) and Everyday Health, Inc. ( EVDY ). While Yelp, Inc. sports a Zacks Rank #1 (Strong Buy), China Distance Education Holdings and Everyday Health hold a Zacks Rank #2 (Buy).

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