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Internet Stock Roundup: SFLY, MNST, NFLX

Posted on Friday, Aug 1st 2008

This quarter doesn’t look so good for quite a few of the online stocks that I cover. Shutterfly and Monster are facing an economic slowdown environment. Netflix may actually be benefiting from the slowdown since people tend to stay at home during recessions, and not eat out, go to the movies, or spend gas money to drive around.

Shutterfly Inc (SFLY), the online photo-sharing company reported their Q2 results yesterday. Revenues of $35.4 million increased 19% over the year but missed analysts’ expectations of $36.1 million. The company reported a loss of $0.16 per share, marginally better than the Street’s expectations of a loss of $0.18 per share. In 2007, Q2 losses were $0.10 per share.

By segment, Personalized Products and Services contributed $19.7 million to the revenues, recording a 26% increase over the year. Print revenues were $15.8 million, growing 11% over the year.

For the quarter, orders grew 7% over the year to 1.6 million and their customer base increased 14% to 834,000. The average order value also grew 11% to $22.70.

Shutterfly expects Q3 revenues of $33-$36 million with losses of $0.25-$0.30 per share. For the year, they gave a revenue outlook of $225-$240 million with an EPS of $0.30-$0.50.

In line with their wish to create a “personal publishing platform”, they launched a beta version of Shutterfly Share 2.0, which is a collaboration solution that will enable users to create secure personal websites for sharing stories, pictures, events and calendars. They also partnered with Big Picture Scrapbooking to extend their presence in the $3 billion scrapbooking market.

The company implemented a new media storage platform to enhance their ability to store multiple media types. They also launched Project Lightbox, which will facilitate the creation of products by consumers. Shutterly was ranked fifth in the ForeSee Results’ list of the Top 100 retailers in customer satisfaction.

Shutterfly was cheap in March this year, trading at $14 levels. After the results announcement, the stock fell to a new 52-week low of $8.60, rising marginally to $9.13 before the end of the day. At the cost of sounding repetitive, it is still quite a good acquisition target for Yahoo! although, until Yahoo’s circus settles down, nothing will happen on that front. Meanwhile, Shutterfly will need to keep executing on its aggressive business development strategy without losing its nerve. Recessions are a good time to execute on core business building initiatives.

1yr SFLY

The other online company to worry about current economic conditions was Monster Inc.(MNST); the online job portal announced their Q2 earnings yesterday.

Quarterly revenues of $354 million grew 9% over the year but missed the market’s expectations of $363 million. EPS of $0.40, however, exceeded the Street’s expectations of $0.37 and recorded a substantial 25% increase over the year.

International revenues grew 34% to $157 million while North American career revenues declined 6% over the year. Management expressed concern over the economic recession: they are experiencing recessionary pressures not only in America, but in Europe as well. In the Asia Pacific region they have also started witnessing a slowdown.

To handle these pressures, Monster has been strengthening its operational efficiencies. Their restructuring has already helped reduce costs by $140 million on an annual basis.

During the quarter, they acquired Trovix, a leading provider of employment products, for $73 million. Trovix’s product portfolio uses Symantec search technology that has the ability to analyze resumes and job descriptions by focusing on key attributes, such as skills, work history, and education. They also acquired a French military site Armees.com which will help them maintain their lead in the military segment.

Continuing with their strategic alliances, they signed partnerships with Cornerstone on Demand, a leading e-learning company that will provide learning and development online courses to job seekers, and HireRight, an on-demand employment screening solutions company that will allow Monster to provide recruiters with seamless candidate evaluation. Additionally, they spent $6 million on stock repurchases to acquire 278,000 shares.

Monster looking at revamping their web site which hopefully will fill in their current gap of categorization within the Web 3.0 framework.

The stock had fallen to a new 52-week low earlier this month at $17.10 and is still trading at $17.74 levels.

Monster still has a market cap of over $2 billion. It could acquire companies like HireRight, whose market cap is only $230 million and Salary.com, whose market cap is only $67 million. You can read my interview with Kent Plunkett, CEO of Salary.com here.

mnst

Netflix (NFLX), the world’s largest online DVD rental service provider, announced results last week. Revenues of $338 million for the quarter met the Street’s expectations and grew 11% for the year. EPS of $0.45 grew a substantial 45% over the year and exceeded the market’s expectations of $0.41. Netflix ended the quarter with 8.4 million users, a 25% increase over the year and a 2% increase over the quarter. They expect benefits to come from their prime competitor Blockbuster revoking their DVD promotion service.

In addition to the technology alliance with LG, they made significant progress in expansion into streaming with the launch of the Netflix play by Roku. In the future, Roku boxes hope to support other Internet video content and migrate to a general Internet video play, increasing Roku’s sales and therefore the number of TVs that Netflix can stream to.

Netflix also announced their partnership with Xbox. The Xbox partnership implies that Netflix members who are also Xbox Live Gold members can stream movies and TV episodes to their TVs at no extra Netflix charge for unlimited streaming. There are UI problems with this service, which will presumably get sorted out.

Their SAC continued to decline and was at a low of $29 in the quarter. They attributed this reduction to spending less on marketing, a better competitive climate, and the big investments they made at lower prices last year.

Netflix has substantial streaming content available to consumers on an unlimited viewing basis. They have also pulled out of the Red Envelope Films effort through which they funded films. I am not particularly happy to see this move. It is against the grain of where I think they should be going: a percentage of proprietary content.

The stock rose 4% on announcement of the results and is currently trading at $30.89.

1yr nflx

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