Shutterfly Looks Dirt Cheap

As a follow up to my recently concluded interview with Shutterfly’s CEO, Jeff Housenbold, here is an analysis of their Q4 results announced earlier last month.

With revenues at $97.5 million for Q4, Shutterfly (SFLY) recorded an impressive 49% year on year growth, and beat market expectations of $93.7 million.

Segment wise, Personalized products and services contributed 64% of Q4 revenue, representing a year on year growth of 55%. Revenue from Print increased by 39% compared to the previous year.

Their EPS of $0.63 was 29% higher than the previous year Q4 EPS of $0.49. However, it fell marginally short of market expectations of $0.65.

Thier annual revenue grew by 52% to $187 million over the 2006 revenue of $123 million. For the year, their EPS grew by 35% to $0.38 but was short of market expectations of $0.40.

Segment wise, contribution of Personalized products and services grew to 56% of revenue for the year from 51% in 2006. Revenue from Print increased by 34% compared to the previous year.

For the year 2008, they expect revenues to be in the range of $245-$255 million, with 16-18% margins. Q1 revenues are projected to be in the range of $34 – $36 million, with a net loss of $1.8 – $2.3 million.

As part of my analysis of the online photo sharing vertical on the Web 3.0 series, I had pointed out that I did not like having to use Shutterfly for private photos and Flickr for public. In the conversation with Jeff Housenbold, he clarifies that it is part of their core strategy to stay focused on “personal memories.” As for innovation around their Content and Commerce strategy, there is much going on in the company that is very interesting.

Their recent acquisition of Nexo will help them improve their Community angle, with users now being able to make collaborative photo books.

Jeff explains, “We are going after the $31B digital photo industry, the $7.5B greeting card industry, the $7 to $8B stationery market where you do wedding invitations and baby announcements. We are going after the $6-$7B calendar business as there are 500 million calendars sold in America each year. We are going after the photo based merchandise business which includes mugs and mouse pads, which is $.5 to $1B this year.” I recommend you read the interview for the full overview of how they are approaching the market.

In 2007 they announced their tie-up with Target, which is helping them expand their visibility from the online world to the brick and mortar world. They still, however, remain US centric and are not looking at the international market right now.

With 7.1 million customers for the year and 72% repeat customers in a quarter, Shutterfly definitely knows how to keep its users happy. The stock, however, has not been so upbeat recently. It saw its new 52 week low of $14.61 in March this year, and is now been trading in a 50 day average of $15.83. I own the stock, and am holding onto it, since I believe in the company’s long term potential.