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Shutterfly (SFLY) Plunges 18% on Q4 Earnings & Sales Miss

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Shutterfly, Inc. posted weak fourth-quarter 2016 results wherein both the top and bottom lines missed the respective Zacks Consensus Estimates. Following the results and other structural changes announcements, shares of the company tanked 18% in afterhours trading on Feb 1.

Quarter in Detail

Shutterfly posted earnings of $2.63 per share in the fourth quarter, lagging the Zacks Consensus Estimate of $2.73 per share by 3.7%.Earnings were in line with the company’s expectation of being in the range of $2.57 to $2.86 per share. However, earnings decreased 26.3% from the year-ago figure of $3.57 per share, due to a lower net margin.

Net revenue increased 2% year over year to $561.2 million and fell within the guided range of $557.0 million to $587.0 million. In fact, the fourth-quarter earnings season marked the 64th consecutive quarter of year over year net revenue growth. However, revenues missed the Zacks Consensus Estimate of $586.4 million by 4.3%.
 

 

Revenues of the company benefited from the strong performance of the Consumer segment, partially offset by weaker performance at its Tiny Prints, Wedding Paper Diva, MyPublisher and BorrowLenses brands.

Revenues from the Consumers category were up 4% year over year to $521.5 million, backed by mid single-digit growth at the Shutterfly flagship brand. Meanwhile, Shutterfly Business Solutions (‘SBS’) segment revenues decreased 11% to $39.7 million. Excluding one-time SBS’ shipping pass through revenue of $14.0 million in the fourth quarter of 2015, SBS net revenues increased 29% year-over-year.

While the total number of customers was up 1% year over year to 6.2 million, total orders generated were up 6% year over year to 10.9 million. However, average order value was $47.98, down 2% from the year-ago quarter, driven by product mix, promotions and mobile mix.

Gross margin increased 70 basis points (bps) to 59.0%. Conversely, excluding the effect of one-time SBS shipping revenues in the fourth quarter of 2015, gross profit margin decreased 80 bps year over year.

Operating expenses totaled $177.4 million flat year over year, as an increase in technology and development costs were partially offset by a decline in general and administrative expenses.

Adjusted EBITDA (Earnings before interest, tax, depreciation and amortization) was $194.8 million, increasing 7% year over year. However, Adjusted EBITDA was below the low end of the guidance range of $196.3 million to $209.2 million, largely due to weak Shutterfly cards and stationery premium offering performance.

Full Year 2016 Results

In 2016, earnings were 45 cents per share, which was below the Zacks Consensus Estimate of 57 cents. However, the figure compared favorably with the prior-year loss of 2 cents per share.

Net revenue increased 7% year over year to $1.13 billion, but was lower than the Zacks Consensus Estimate of $1.16 billion.

Shutterfly, Inc. Price, Consensus and EPS Surprise

1Q17 Earnings Outlook

The personalized products and service provider’s business is highly seasonal and generally incurs losses in the first three quarters of the year. For the first quarter of 2017, the company expects to incur loss per share in the range of $1.00 to 95 cents. This estimate is wider than Zacks Consensus Estimate of a loss of 87 cents per share.

Net revenue is expected to be in the range of $185.0 million to $190.0 million, a year-over-year decrease in the band of 1.6% to 4.2%.

Gross profit margin is expected within 37.0% to 37.5% of net revenue. Adjusted EBITDA is expected in the range of a loss of $7.0 million to $4.5 million.

2017 Guidance

The company expects earnings of 45 to 80 cents per share in 2017. The guidance compares unfavorably with the current Zacks Consensus Estimate of $1.20 per share.

Net revenue is expected in the range of $1.135 billion to $1.165 billion, a year-over-year increase of 0.4% to 3.1%. Adjusted EBITDA is expected in the range of $210.0 to $230.0 million.

Gross profit margin is projected in the range of 49.0% to 50.0% of net revenue.

Structural Changes

Along with the fourth quarter results, Shutterfly announced four areas of strategic focus going forward. To focus resources on these four components of the strategic plan, Shutterfly plans restructuring in 2017, with many changes occurring over the course. As a result of which the company expects to incur restructuring charges over the same time frame ranging from $15 million to $20 million.

One of the main changes is that the company’s workforce will be reduced by approximately 13% or 260 employees, which is expected to result in an annualized cost decrease of approximately $25 million.

Zacks Rank and Stocks to Consider

Shutterfly currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the Internet Content and Services industry include Tucows Inc. (TCX - Free Report) , RELX PLC (RELX - Free Report) and Yelp Inc. (YELP - Free Report) .

Tucows’ full-year 2016 growth estimate is pegged at 64% compared with the industry average of 11.6%. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

RELX carries a Zacks Rank #2 (Buy). Its current year earnings estimates have risen by 1.1% over the past two months.

Yelp holds a Zacks Rank #2. Its full-year 2017 growth estimate is pegged at 210.1% compared with the industry average of 18.8%.

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