Shutterfly ( SFLY ) recently announced its Q2 results and posted revenues of $75.8 million, which was up 62% over Q2 2010 owing in large part to the contribution of Tiny Prints that it acquired last quarter. Increasing competition from companies like HP's ( HPQ ) Snapfish and low cost digital photography products by Wal-Mart ( WMT ) and Costco ( COST ) are driving Shutterfly's efforts to expand its offering with the Tiny Prints acquisition. Shutterfly's main business division - Personalized Products and Services - carried the results posting an 85% increase in revenue.
Following the results, we have updated our Trefis price estimate for Shutterfly to $62.50 , which is around 15% ahead of the market price. Going forward, these are some of the key trends which should influence Shutterfly's growth.
Revenue Growth From Cards, Stationery and Photo Books
Shutterfly acquired Tiny Prints last quarter, which has contributed significantly to the jump in revenues that was driven primarily by the Cards & Stationery and Photo Books categories. Tiny Prints brought in nearly $20.4 million dollars in revenue on a pro-forma basis for the second quarter. The company is a privately held e-commerce company offering stylish cards, invitations, personalized stationery and photo books operating in the same vertical as Shutterfly. Since Tiny Prints earns over 50% of its revenues in the forth quarter, we expect Tiny Prints to contribute meaningfully to the full year results.
Going forward, we expect Shutterfly's revenues from this division to increase in the range of 20% to 30% every year as the number of users continue to grow. The increased cross-selling opportunities between the different product offerings after the Tiny Prints acquisition should also contribute to an increase in revenues despite the expected decrease in average order value. Shutterfly bought Tiny Prints for roughly $369 million in cash and stock, and we assume Tiny Prints can contribute around $100 million on an annual basis making this purchase look like a smart move by Shutterfly.
New Products to Spur User Growth
Shutterfly also introduced the new Custom Path photo book feature and also added some new features like "Events and Celebrations" to Share Sites which should help it attract new users to the service. Introducing new products and services will not only help attract new users but should also increase the average revenue per user.