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Shutterfly Sees Photo Books Replacing Albums

Posted on Tuesday, Jun 3rd 2014

An IBIS World Research report published last December pegs the US online photo printing market at $2 billion, led by Shutterfly and Snapfish. Over the five year period 2008 through 2013, the market reported an impressive 14.5% annual growth. The increased adoption of services like Photo Books is already replacing traditional albums. In a US Photo Printing Survey conducted last year, InfoTrends found that 34% of the respondents had already shifted to Photo Books and another 29% were planning to use them instead of albums.

Shutterfly’s Financials
Shutterfly’s first quarter revenues grew 17.5% over the year to $137.1 million, ahead of the market’s projections of $135 million. Loss per share for the quarter of $0.82 was also narrower than the market’s projected loss of $0.93 per share.

By segment, revenues from the Consumers division grew 19% over the year to $130.6 million. Enterprise segment revenues fell 6% to $6.5 million.

Among other operating metrics, the total number of customers grew 14% to 2.6 million with the number of orders growing 13% to 3.9 million. The average order value improved 5% to $33.76. Revenues from their mobile based offerings grew to 9% of Shutterfly brand revenues in the quarter compared with 4% a year ago.

For the current quarter, Shutterfly projected revenues of $154 million-$158 million with a net loss of $0.65-$0.68 per share. They expect to end the year with revenues of $903 million-$920 million and a net loss of $0.08-$0.13 per share. The Street was projecting revenues of $157 million for the quarter with a loss of $0.67 per share. The market has modeled the year’s revenues at $915 million and an EPS of $0.01.

Shutterfly’s Product Expansion
Shutterfly has been focusing on expanding their cloud-based offerings. They are leading it with ThisLife, the cloud-based photo and video organization platform that they had acquired last year. Earlier this quarter, they introduced new features and functionality as part of their beta release. Some of the recent enhancements include a smart algorithm to support facial recognition, ability to rate photos and videos, and impressive capabilities such as expanding search capabilities by enabling search through multiple variables such as people, places, tags, and dates. The beta product is also focused on ensuring aggregation across all platforms and devices. ThisLife is expected to be released this summer.

Additionally, Shutterfly continued to improve their branded products by releasing personalized products such as metal prints, mugs, luggage tags, and pillows. Within the Wedding Paper Divas offering, they improved the UI on their website to help drive higher conversion rates and increased product offerings such as signature foil-stamped collection, mini cards, envelope colors, and liners. They also expanded their Photo Books offering with the release of the Make My Book service, which allows for a customized book based on the customer’s requirements of book size, style, and photos while letting their concierge service team create the book.

Given the photo books trend, I have to reiterate my recommendation that Shutterfly acquires Blurb. Blurb is an impressive self publishing platform that lets authors create, design, and market their own book , thus retaining 100% of the markup. Founded by Eileen Gittins, whom I had spoken with a few years ago, Blurb has managed to raise $21.6 million till date to help publish 2 million print books last year in seven languages in 75 countries. Blurb has also expanded to the digital platform and has produced 250,000 e-books within a year of launching its digital publishing service. Blurb is also focused on the photo books market and last year released apps that let users create photo books directly from mobile phones. Blurb’s detailed financials are not known, but they have been profitable and were clocking revenues of $45 million back in 2009, four years since it launched.

Their stock is trading at $41.49 with a market capitalization of $1.60 billion. It touched a 52-week high of $59.93 in August last year.

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