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Analyst Blog

On Aug 22, 2014, we issued an updated research report on Shutterfly, Inc. (SFLY - Analyst Report).

On Jul 30, this leading provider of personalized products posted second-quarter 2014 results. Second-quarter 2014 loss per share of 63 cents was narrower than the Zacks Consensus Estimate of a loss of 74 cents, owing to better-than-expected top line. Also, the company's second-quarter loss was narrower than management's expectation of a loss of 65 to 68 cents. However, the loss was much wider than the prior-year quarter loss of 29 cents per share, due to higher total operating expenses.

In the quarter, net revenue increased 19.2% year over year to $159.1 million and beat the Zacks Consensus Estimate of $157.0 million by 1.3%. Revenues benefited from the strong performance of both the Consumer and Enterprise segments. Revenues also beat management's guidance range of $154.0 to $158.0 million.

In the quarter, the total number of customers was 2.6 million, reflecting an increase of 13% from the prior-year quarter. Total orders generated were 4.2 million, up 16% year over year. Average order value was $36.14, up 3% year over year driven by promotional strategies and integrated marketing campaigns adopted by the company.

Overall, we are encouraged with the company’s innovation program. The company introduced several products, styles and premium options to its existing portfolio of high-quality personalized products and brands. These continued innovations and investment in consumer oriented programs are expected to improved traffic trends, going forward, thereby adding to both the top and bottom line.

Further, Shutterfly is geared to beef up its mobile-related offerings with smartphones and tablets dominating the market. Moreover, the company is focused on increasing manufacturing and operational capabilities and expanding its portfolio through strategic acquisitions. We are encouraged by the company’s strategic acquisitions and improved offerings in the growing mobile e-Commerce segment.

Apart from new product offerings, the company intends to improve operational efficiency and open manufacturing facilities or consolidate the existing ones for future expansion.

However, the company expects profitability to be hampered in 2014, due to the termination of the Costco partnership. Though the company intends to reinvest funds in other channels, it does not expect to generate the same efficiencies as in the Costco partnership. Also, depreciation and equipment costs for expansion and acquisition of manufacturing facilities are expected to affect profitability in 2014. Additionally, relocation of its data center to Nevada is expected to incur a full quarter of duplicate data center costs.

The company presently has a Zacks Rank #2 (Buy). Other stocks in the same industry that can be considered include Perfect World Co., Ltd. (PWRD - Snapshot Report), YY Inc. (YY - Snapshot Report) and Global Eagle Entertainment Inc. (ENT - Snapshot Report). While Perfect World and YY sport a Zacks Rank #1 (Strong Buy), Global Eagle Entertainment carries a Zacks Rank #2.

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