Shutterfly Q4 Earnings: Shares Plummet On Slowing Consumer Business

Shutterfly ( SFLY ) posted quite a dismal quarter this time around, missing earnings and revenue estimates by a large margin. The growth in the company's Shutterfly brand was partially offset by declining revenues at Tiny Prints, Wedding Paper Divas, MyPublisher, and BorrowLenses brands. Furthermore, the company's cards and stationery business posted a woeful quarter, with low demand at most premium offerings weighing on revenues. Additionally, the company faced delivery issues with a number of Tiny Prints customers, with deliveries reaching significantly later than the estimated date of arrival.

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Overall, Shutterfly recorded a relatively disappointing performance in its consumer business in the year. That said, Shutterfly Business Solutions ( SBS ) continued to outperform and mature as a business in 2016. Strong growth and margin expansion throughout the year is testament to this fact.

What Went Wrong With The Consumer Business?

  • In recent years, Shutterfly's management was forced to spread its resources across many of its platforms in an effort to build its Shutterfly brand. This left many businesses hurt in the process.

  • Additionally, the company had prioritised revenue growth over profitability in the past. However, with slowing growth in recent years, upper management felt compelled to optimise for short-term results at the expense of investing for the long-term. This strategy significantly hurt revenues.

  • Furthermore, increased investments at Tiny Prints and Wedding Paper Divas didn't produce the results that were expected. This has led to lower than expected revenues consecutively in the recent few quarters.

What Is The Plan Going Forward?

To ensure future growth, the company is concentrating on four main components over the next three to five years.

  • Making the purchasing of personalised products simple : Despite Shutterfly's popularity, it has struggled to increase its number of customers in the recent past. This has led management to believe that maybe the problem lies in the process of creating a personalised gift. Historically, the process has been confusing and time-consuming to say the least. In this respect, management believes that the trick to reaccelerate growth in the company's core categories is by improving and greatly simplifying every aspect of the creation in purchase process.

  • Offer a greater range of products to choose from : Over the years, Shutterfly has expanded its product portfolio significantly. From cards to stationery to home decor, the company has come a long way. However, it appears as though demand for the existing products has slowed down in recent years. In this respect, going forward, Shutterfly needs to improve the number of products and categories that it offers in an attempt to capture a larger audience.

  • Improving its mobile app penetration : Pushing customers to use mobile devices naturally complements the first two strategies. The recently launched app is representative of how simple and elegant the mobile creation experience can be. The app enables customers to create a card or a photo book in a matter of minutes. It is for this reason that the company needs to work hard to shift customers away from the website to the app, a strategy, which until now, has been working very well. In addition, Shutterfly must also work towards extending its mobile offerings to encompass its entire range of products over time.

  • Leveraging the manufacturing process : The company's in-house manufacturing capabilities already represent the world's largest four-color digital printer, with industry leading scale, quality, and cost. Through its extended manufacturing platform, the company must build further on its manufacturing capabilities to best position itself for future growth.

Massive Restructuring In Store At Shutterfly

2017 is expected to be a make or break year for the company. In an effort to improve the business, Shutterfly has decided to streamline its business and focus on the few businesses that have consistently performed over the years. Here are the highlights of the restructuring process:

  • Business consolidation : Shutterfly expects to consolidate a number of its business onto a single platform. The Tiny Prints brand will get a designated tab on, while Wedding Paper Divas will be absorbed into the newly created Shutterfly Wedding Store. Over the course of the first three quarters in 2017, the company will work on transitioning existing customers at these businesses to the new Shutterfly platform.

  • Shutting down smaller, inconsequential brands : Furthermore, the company is expecting to close a number of its smaller brands like the TripPix and FavPix apps, and the Shutterfly Pro Gallery service. These three businesses account for minimal revenue today.

  • Workforce consolidation : The company is expecting to lay off about 13% of its workforce, while also shutting two offices, in New York City and in Santa Clara.

By the time the restructuring plans conclude, we can expect to see an entirely different Shutterfly. By building on a single consumer platform, the company can ensure that all customers benefit from continued investment in the platform, enjoying features that otherwise would have been unavailable to them on the Tiny Prints, Wedding Paper Divas, or MyPublisher legacy websites.

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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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