Shutterfly's Growth Strategy

Nov.15.13 | About: Shutterfly, Inc. (SFLY)

Recent market reports suggest that consumers are shifting from printing photos to sharing them electronically. According to market reports, more than 22 billion photos will be shared through electronic media by 2015. The trend now is to create personalized products like mugs and totes instead of ordinary photo prints.

Shutterfly's Financials

Shutterfly's (NASDAQ:SFLY) Q3 revenues grew 25% over the year to $122.7 million, surpassing market expectations of $118 million. The loss of $0.24 per share was significantly better than the previous year's loss of $0.29 per share and the Street's projections of a loss of $0.62 per share for the quarter.

During the quarter, consumer net revenues grew 25% over the year to $112.7 million, while enterprise net revenues grew 22% to $10 million. Total transacting customers grew 6% over the year to 2.4 million, with orders recording growth of 8% over the year to 3.9 million transactions. The average order value grew 16% over the year to $29.07.

For the current quarter, Shutterfly projects revenues of $392.1-$405.1 million with EPS of $0.95-$1.11. The company expects to end the year with revenues of $765 million-$778 million and earnings of $0.20-$0.35 per share.

Shutterfly's Holiday Lineup

During the third quarter, Shutterfly launched several new offerings to attract holiday shoppers. Within the Shutterfly brand, it increased color, layout and back of card options to the holiday card lineup and released features like 5 x 7 Tri-Fold greeting cards, rounded corners and pearlescent paper. It is also attracting more consumers by organizing photo shoot opportunities at 15 shopping malls across the country. Consumers will be able to get their photos taken free and log into Shutterfly's site to transform them into memorable greeting cards. Within Photo Books, too, the company added more size ranges. It is expanding its photo offerings to other gift products and introduced products such as personalized iPad and smartphone cases, glass prints and table runners. To cater to the expedited delivery requirements during the holidays, Shutterfly launched Super Rush Plus on Tiny Prints, where customers will be able to place a holiday card order by 1:00 p.m. Eastern Standard Time and receive the cards the next business day.

Within the Enhanced Cloud Services, Shutterfly is beta testing a service called ThisLife where customers will be able to collect and manage content like photos and videos from across devices, cloud services and social networks. The service will use features such as facial recognition, chronological organization and simple search to enable consumers to create photo memories by person, place or event.

Shutterfly's Acquisitions

As part of its growth through acquisitions, Shutterfly announced the acquisition of R&R Images and BorrowLenses. R&R is a small marketing solutions and manufacturing company focused on providing short-run, high-touch digital print offerings. It was already an established outsourced printing partner for Shutterfly. The acquisition helps to bring in enhanced printing capabilities to Shutterfly's customers. Terms of the deal were not disclosed.

BorrowLenses is a premier rental provider for photographic and video equipment. Through the acquisition, Shutterfly will be able to cater to the market of professional photographers who are interested in providing high-quality photographs and content on Shutterfly's platforms.

The stock is trading at $49.24 with a market capitalization of $1.87 billion. It touched a 52-week high of $59.93 earlier last quarter.

Shutterfly's recent moves suggest an active interest in moving to alternate revenue sources like products and premium prints. Recently, the company has also spoken about bringing some of its services under a fee-based subscription model. For Shutterfly to be able to charge a fee, it will have to ensure that its content is superior enough to command a premium price. At this point, an acquisition of high-end photo book vendor Blurb may be a good option. It would create a strong offering for the professional and serious amateur photographer category.