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Still Bullish on Shutterfly

Posted on Friday, May 2nd 2008

Shutterfly (SFLY), the online photo company, recently declared first quarter results. Their revenue for the quarter of $34.3 million missed the market’s views of $34.8 million, even though it was 29% higher over previous year Q1 revenues. Their GAAP net loss at $0.15 per share met market expectations and was higher than GAAP net loss of $0.04 per share in the previous year.

Going forward, the company expects revenues in the range of $35-$38 million with non GAAP net loss of $0.19-$0.24 per share. The street was expecting revenues of $36.7 million with net loss of $0.17 per share. For the year, the company is expecting revenues of $225-$245 million with EPS of $0.30-$0.50.

Segment wise, for the quarter, Personalized Products and Services contributed 54% of revenues for the quarter at $18.4 million, registering a 41% year on year increase. Print revenues contributed the balance $15.9 million recording a 17% year on year increase, much lower than the 34% year on year increase reported last quarter. This is in line with their strategy to focus more on the higher margin personalized photo merchandise business, and less on the commodity print business, where pricing pressures are paramount.

In other key metrics, they recorded a 78% repeat customer business compared to 72% repeat customer business booked last quarter. Their website visits and new user registrations grew by 32% each over the year. There was a 41% year on year increase in the unique users who uploaded images.

In my web 3.0 analysis of Shutterfly, I had mentioned how I would like to see more feedback features like Ratings (like Flickr) or Guestbooks (like Kodak). Their Shutterfly Gallery launched this quarter, about which Jeff had mentioned in his interview, is a step in that direction. Now photos can be tagged and then viewed and rated by the community.

Another vertical that Jeff was aiming at was the scrapbook arena. This quarter they tied up with CK Media which will introduce Shutterfly users to CK Media’s customers through classes on creating scrapbooks, selling scrapbooks created by leading designers, and online co-marketing and collaboration. Read the interview with Jeff for more insights.

I have always mentioned that Yahoo! should buy Shutterfly for monetization of photo merchandising and printing which their wildly popular Flickr service does not offer. I repeat the view as Shutterfly signed a multi-million dollar intellectual property cross-licensing agreement with American Greetings, Inc. this quarter. The agreement is their first transaction in the intellectual property monetization strategy. And perhaps, under Microsoft, the prescribed acquisition will take place. After all, they have acquired Farecast in the travel vertical.

Shutterfly looks dirt cheap even today. With only 6% of digital camera owners using online services, the demand for their services is bound to improve.

The stock fell to a 52-week low of $12.65 on the day following the announcement of the results. It recovered during the day and closed at $14.68. I’d say, buy some.

SFLY 1yr

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