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Shares of Shutterfly, Inc. (SFLY - Analyst Report) jumped 15.0% after Bloomberg reported that the online photo-printing service provider has hired boutique investment bank Qatalyst Partners LLC to find a buyer for itself.

Private-equity firms as well as e-commerce and web storage companies are expected to bid for the company. However, the company is in the early stages of seeking a buyer and might not reach a transaction.

The decision comes in the wake of back to back losses incurred by the company. Shutterfly’s business is highly seasonal and the company generally posts losses in the first three quarters of the year.  

In 2014, the company expects the bottom line to be in the range of a loss of 8 cents to earnings of 13 cents for 2014, representing a decline from 2013 levels. Other than seasonality, Shutterfly’s profits are being hurt by the termination of the Costco partnership in 2013. Besides this, depreciation, labor, and equipment costs for expansion and acquisition of manufacturing facilities are also adversely impacting profitability.

Moreover, the company faces stiff competition from big players such as Google Inc. and Facebook, Inc. (FB - Analyst Report) who have been acquiring companies in the technology and Internet space. These companies have better and effective resources to leverage these acquisitions and would eventually eat into Shutterfly’s market share.

Shutterfly currently has a Zacks Rank #3 (Hold). China Distance Education Holdings Limited (DL - Snapshot Report) is a better-ranked stock in the same sector with a Zacks Rank #1 (Strong Buy).


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