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Shutterfly Flying High

Posted on Tuesday, Dec 28th 2010

The online photo sharing market has been in the news lately due to patent infringment suits filed by Kodak and Shutterfly against each other. Analysts believe that Kodak’s patents are exceptionally broad that cover images stored in a central repository and which can be ordered online. The legal battle will be closely watched by Facebook, now the world’s largest photo-sharing site. To its photo sharing capabilities, Facebook recently added features such as enabling users to upload or download high-resolution photos, bulk tag photos, and the lightbox UI that help focus on the image.

Shutterfly’s Financials
Shutterfly reported Q3 revenues of $49 million with EPS of $0.17. The market was expecting revenues of $47 million with EPS of $0.26. With 21% growth over the year, this was the 39th consecutive quarter of year-on-year revenue growth.

During the quarter, revenues from personalized products & services grew 38% over the year to $32.7 million. Revenues from prints of $15.7 million were flat compared with the previous year. Commercial print net revenues aggregated $0.6 million.

Among other operating statistics, total transacting customers of 1.2 million grew 27% over the year. Total orders grew 20% over the year to 2 million, resulting in a 3% growth in average order value to $23.75.

For the current quarter, the company is projecting revenues of $148.5–$153.5 million with EPS of $0.97–$1.04. The market was looking for revenues of $147.9 million with EPS of $0.94.

Shutterfly’s Expanding Offerings
Shutterfly continued to expand their offerings. In the recent quarter, they enabled access to Picasa images from the photo book creation path, and introduced new styles like travel, vacation, and holiday layout options. They partnered with the American Youth Soccer Organization (AYSO) to make their Youth Sports Share sites available to over 50,000 soccer teams across the country.

They also expanded their retail presence and tied up with CVS Pharmacy and Walgreens to enable in-store pick-up at their locations for Shutterfly customers.

Shutterfly Acquired WMSG
Shutterfly recently acquired WMSG’s data management and marketing analytics capabilities for $6 million to expand their commercial print business. WMSG is a privately held digital direct marketing specialist with clients that include Toyota and Dell. Through the acquisition, Shutterfly is looking to deliver “scalable end-to-end variable digital marketing solutions to direct marketing campaigns of any size and scope.” Unlike the personal print business, the commercial business also has a strong non-seasonal requirement. This expansion will help Shutterfly to improve utilization at their manufacturing facility.

The stock is trading at $34.78, taking its market capitalization to $954 million. It touched a 52-week high of $36.69 earlier this month.

The online photo vertical has become an integral part of the Web. A study conducted by comScore in April revealed that more than 50% of all U.S. internet users visited at least one photo sharing site during a month. In April, the number of unique visitors to photo sharing sites grew 3% over the month to 112.7 million. Among the most visited sites were Photos, which saw 8% growth in the month,, LLC, and Flickr, which were up 4%. ImageShack saw sizeable growth in April, growing 59% to 2.3 million visitors. Photos has become a key player in the segment. In July of this year, they recorded over 100 million photo uploads every day. To counter their growth, other players have had to work harder. Flickr, for instance, released “lightbox”, improved navigation, and added geotags to their photos to identify where photos were taken.

Mobile uploads are another trend to watch for. Today, competitors already have their own free app that lets users upload, download, view, and share photographs through their smartphones. During the year, alone saw 400% growth in the number of photos uploaded from smartphones. The company expects the trend to continue in the coming year given that mobile uploaded photos still accounted for less than 10% of their total eight billion image uploads. The industry will have to come up with innovative ways to keep smartphone users connected to their site.

Even within the online photo vertical, the photo card segment is growing strong. Analysts estimate the U.S. market to be worth $450 million this year with robust growth predicted for the years to come, indicating growth potential for the likes of Shutterfly.

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