SFLY Posts Narrower-Than-Expected Loss - Analyst Blog

The leading manufacturer and digital retailer of personalized products and services, Shutterfly Inc. ( SFLY ), posted second-quarter 2013 loss of 29 cents per share. The loss was substantially narrower than the Zacks Consensus Estimate of 54 cents loss per share, but wider than the year-ago loss of 27 cents a share. However, the company's loss per share was better than the management's guidance range of a loss of 55-58 cents. Higher operating costs led to the wider year-over-year loss in the quarter.

In the quarter under review, net revenue increased 34.8% year over year to $133.5 million, which was ahead of the Zacks Consensus Estimate of $122.0 million by 9.4%. Revenues in the quarter benefited from the company's strong Consumer and Enterprise segments and increase in both customers and transactions. Revenues also beat management's guidance range of $118-$121.2 million.

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

Behind the Headline Numbers

Revenues from the Consumers category were $124.9 million in the quarter, up 32.0% over the prior-year quarter. The category received a boost from the increased selling across all of its five brands as well as core products like photo books and cards during gift-giving ceremonies like Mother's Day, Father's Day and graduation.

Net Enterprise revenues grew 86% to $8.6 million in the quarter, driven by higher client orders.

In the quarter, the total number of customers was 2.3 million, reflecting an increase of 24.0% from the prior-year quarter. Total orders generated were 3.6 million, up 20% year over year. Average order value was $34.96, up 10% year over year. Shutterfly's promotional and pricing strategies and its wide range of premium services helped augmenting average order value.

Adjusted gross profit margin contracted 300 basis points (bps) from the prior-year quarter to 49.0%, mainly due to the rise in depreciation and equipment expenses, higher customer service costs from the company's latest Fort Mill facility and change in the product mix.


Shutterfly acquired one of the major players in the photo book industry, MyPublisher, in the second quarter and integrated the latter's photo book technology and highly specialized manufacturing capabilities with its business.

Third-Quarter Guidance

For the third quarter of 2013, Shutterfly expects net revenue in the range of $115.5-$117.5 million. The company expects to incur a loss of 58-62 cents per share in the upcoming quarter.

2013 Guidance

For fiscal 2013, Shutterfly raised its expectation for net revenue in the range of $776.0-$781.0 million from prior expectations of $766.0-$771.0 million. Earnings are estimated between 23 cents and 33 cents per share.

Our Take

Shutterfly continued to post strong results in the second quarter of 2013, beating estimates for seven consecutive quarters. Solid growth across Consumer as well as Enterprise categories seems to be the reason behind the company's increased revenue guidance for 2013.

This Zacks Rank #2 (Buy) company has been very active on the acquisition front. The MyPublisher acquisition is expected to benefit the company in the long term.

Internet content companies that warrant a look include Brightcove, Inc. ( BCOV ), TripAdvisor Inc. ( TRIP ) and SINA Corporation ( SINA ). While Brightcove carries a Zacks Rank #1 (Strong Buy), TripAdvisor and SINA Corp have a Zacks Rank #2 (Buy).

BRIGHTCOVE (BCOV): Free Stock Analysis Report

SHUTTERFLY INC (SFLY): Free Stock Analysis Report

SINA CORP (SINA): Free Stock Analysis Report

TRIPADVISOR INC (TRIP): 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.

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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