Back to top

Analyst Blog

We reaffirm our Neutral recommendation on Shutterfly Inc. (SFLY - Analyst Report) following an appraisal of its fourth quarter 2012 results. While Shutterfly wrapped up the year 2012 on a strong note, beating estimates in all four quarters by significant margins, challenging economic conditions and seasonal headwinds in the upcoming quarter make us cautious at the current level.

Why the Reiteration?

Shutterfly’s recently-concluded fourth-quarter 2012 earnings per share breezed past the Zacks Consensus Estimate by 38.6% and the year-ago result by 44.3%. Increased revenues along with efficient cost containment led to the beat.

In the quarter under review, net revenues surged 33% year over year, significantly ahead of the Zacks Consensus Estimate, induced by sturdy sales from both Consumer and Enterprise categories.

According to Shutterfly, the market for social expression products in the U.S. alone, including one-for-one greeting cards, birthday cards, holiday cards, baby and wedding announcements, personalized stationery, and online greetings approximate $12 billion in annual sales. Presently, Shutterfly operates in less than 5% of this market. Such a limited presence in the online market leaves a huge room for expansion.

We also appreciate Shutterfly’s rapid inorganic growth. In the last three years ended 2012, Shutterfly took control of about 8 companies. We believe that all these strategic acquisitions augur well for Shutterfly and enable the company to enhance its portfolio and provide next generation photo solutions.

Despite sturdy fundamentals, there are some drags that keep us on the sidelines at the current level. Shutterfly’s business is highly seasonal. The company generates a large portion of its earnings during the fourth quarter of every year, which is the holiday season. More than 50% of net revenues are generated in the fourth quarter, which makes the first quarter seasonally weak.

Additionally, less pricing power in the printing business and faster-than-expected extinction of print photos due to social media sharing and adoption of home photo printers are expected to remain an overhang. Cutthroat competition in an anemic economy can also affect the company’s pricing power in its other businesses.

Other Stocks to Consider

Shutterfly currently retains Zacks Rank #3 (Hold). Some others players in the Internet content providers industry looking attractive at current levels include Angie's List Inc. (ANGI - Snapshot Report), Changyou.com Limited (CYOU - Snapshot Report) and Giant Interactive Group Inc. all carrying a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%