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Shutterfly Up For Sale

Posted on Thursday, Aug 21st 2014

The online photo printing market may be growing at an annual growth rate of 14.5%, but that has not helped leading players like Shutterfly (Nasdaq: SFLY) deliver strong financial results. After reporting continuing losses, it appears that the company’s management is now on the lookout for buyers.

Shutterfly’s Financials
Shutterfly’s second quarter revenues grew 19.2% over the year to $159.1 million, ahead of the market’s projections of $157.1 million. Loss per share for the quarter of $0.63 was significantly narrower than the market’s projected loss of $0.74 per share.

By segment, revenues from the Consumers segment grew 20% to $150.1 million, driven by the increasing popularity of their cards, stationery, and photo gifts during Easter, Mother’s Day, Father’s Day, and graduation days. Enterprise revenues improved 5% to $9 million.

Among operating metrics, the total number of customers grew 13% to 2.6 million and total orders improved 16% to 4.2 million. The numbers translated to an improvement of 3% for the average order value which grew to $36.14.

For the current quarter, Shutterfly projected revenues of $140.5 million-$153.5 million with a net loss of $1.14-$1.11 per share. The market was looking for revenues of $144 million with a net loss of $1.09 per share. Shutterfly improved the year’s projections to revenues of $905 million-$920 million compared with estimates of $903 million-$920.0 million provided a quarter ago. Net loss estimates, however, increased to $0.11-$0.20 per share compared with earlier estimates of a net loss of $0.08-$0.13 per share. The Street estimates the year’s revenues at $915 million with an EPS of $0.07.

Shutterfly’s Anticipated Sale
Not only has Shutterfly been reporting continued losses, but they were also hurt severely last year when Costco ended their agreement for Shutterfly product sales. Given the situation, Shutterfly seems to be on the lookout for a buyer for themselves. During the quarter, they entered into an arrangement with investment bank Qatalyst Partners to help them with the search. The search is still in its initial stages. The market expects several buyers who may be interested in the acquisition. Topeka Capital Market’s analyst, Victor Anthony, expects that the company will be a good buyout target for Amazon. He rightly mentions:

“For Amazon, it would be a category expansion and both companies are embracing the cloud. Further, they are similar in that both have physical infrastructure and Amazon could scale SFLY’s distribution centers and run them more efficiently.”

Shutterfly’s Product Innovation
The plans for sale, however, have not slowed down Shutterfly’s product expansion. During the quarter, they introduced a new home décor collection and added products like designer wall bundles that will let customers create, order, and make a wall arrangement. The product has received positive reviews from lifestyle expert Martha Stewart. Additional products launched within the home décor collection include metal wall art, pillows, glass prints, iPad cases, lunch bags, and smartphone battery cases. They have also released a new graduation stationery collection with teen celebrity Victoria Justice and a stationery collection with designer Charlotte Ronson.

Within the Wedding Paper Divas brand, they launched foil stamps including new envelope packaging, embellishments, enclosures, and gift tags. They have also entered into an agreement with Pottery Barn Wedding Registry to introduce newly married couples to the Wedding Paper Divas brand.

Their stock is trading at $49.84 with a market capitalization of $1.92 billion. It touched a 52-week high of $58.83 in September 2013.

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