Shutterfly (SFLY) Stock Up on Q2 Earnings and Revenue Beat

Shutterfly, Inc.SFLY reported impressive second-quarter 2018 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. While the bottom line came ahead of the consensus estimate for the sixth straight quarter, the top line surpassed the same for the fourth consecutive quarter. Following the results, shares of the company increased 9% in after-hours trading.

Adjusted earnings came in at 38 cents per share, outpacing the consensus estimate of loss of 43 cents. This better-than-expected bottom-line performance can be attributed to improved top line and sharp increase in operating income. In the year-ago quarter, Shutterfly had incurred adjusted loss of 44 cents per share.

Net revenues of $443.4 million increased 112.1% year over year and exceeded the consensus mark of $438 million. Sharp increase in top line was primarily owing to acquisition of Lifetouch and robust performance by the Shutterfly Business Solutions segment. In fact, the second-quarter earnings season marked the 70th consecutive quarter of year-over-year net revenue growth.

Revenues in Detail

Revenues from the Consumers category totaled $165 million, down 8% year over year. Decline in revenues from the non-Shutterfly brand due to brand shutdowns significantly impacted the segment's performance. However, the company witnessed growth in Shutterfly brand, courtesy of robust performance at Photo Books and the Wedding Shop.

Lifetouch Segment generated revenues of $228.6 million. This segment was formed following the acquisition of Lifetouch.

Revenues from the Shutterfly Business Solutions (SBS) segment surged 66% year over year to $49.8 million. The uptick was driven by rapid closure of a multi-year deal, which was inked with an existing client.

Unique customers declined 6% year over year to 3.1 million and total orders decreased 12% year over year to 4.8 million primarily due to platform consolidation. On the flipside, average order value increased 5% to $34.46 backed by product mix.

Shutterfly, Inc. Price, Consensus and EPS Surprise

Shutterfly, Inc. Price, Consensus and EPS Surprise | Shutterfly, Inc. Quote

Operating Performance

Adjusted gross margin in the second quarter was 53.4%. Shutterfly Consumer gross margin contacted 80 basis points to 47.8%. However, Lifetouch gross margin was 65.2%, ahead of the company's expectation. Shutterfly Business Solutions' gross margin declined to 16.5%.

Moreover, the company reported adjusted EBITDA (Earnings before interest, tax, depreciation and amortization) of $84.4 million, up from $17.4 million in the prior-year quarter. Operating expenses totaled $222.1 million.

Balance Sheet

Shutterfly exited the second quarter with cash and cash equivalents of $146.7 million compared with $489.9 million at the end of 2017. Accounts receivables summed $58.6 million, down from $82.3 million as of Dec 31, 2017. Long-term debt totaled approximately $1,094.3 million compared with $292.5 million at the end of 2017.


For 2018, Shutterfly expects overall profitability to increase backed by the Lifetouch acquisition, which was closed on Apr 2, 2018. Additionally, the company envisions adjusted earnings to be in the range of $3.05-$3.50 per share, up from $2.83-$3.28 guided earlier.

Net revenues are projected to be between $2.01 billion and $2.065 billion compared with $$2.01 billion and $2.06 billion, projected previously. Adjusted gross profit margin is estimated to be 53.7%. Adjusted EBITDA is anticipated to be in the band of $400-$420 million, above the prior estimate of $390-$410 million. Operating income is envisioned to lie within the $196-$215 million range, up from prior guided range of $185-$206 million. Furthermore, capital expenditures are expected to be $100 million in the current year.

Also, Shutterfly Consumer revenues are expected to be in the band of $1.00-$1.05 billion, while the same from Shutterfly Business Solutions are projected to be between $220 million and $230 million. Lifetouch revenues are envisioned to be in the $790-$810 million range.

Shutterfly, which shares space with TheStreet, Inc. TST and Global Eagle Entertainment Inc. ENT , carries a Zacks Rank #3 (Hold).

Key Pick

A better-ranked stock in the same space is SINA Corporation SINA , which carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

SINA reported better-than-expected earnings in three of the trailing four quarters, with an average beat of 4.8%.

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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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