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Why is Shutterfly (SFLY) Up 12.8% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for Shutterfly, Inc. (SFLY - Free Report) . Shares have added about 12.8% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is SFLY due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Shutterfly Posts Narrower-Than-Expected Q1 Loss

Shutterfly incurred adjusted loss of 73 cents per share narrower than the consensus estimate of a loss of 95 cents. In the year-ago quarter, Shutterfly had incurred adjusted loss of 84 cents per share. The figure was also better than the company’s guided range of a loss of 92-96 cents. Evidently, the improvement came on the back of a higher top line.

Net revenues of $199.7 million increased 4% year over year and surpassed the consensus mark of $192 million by 4%. The top line came well ahead of the guided range of $190-$194 million. In fact, the first-quarter earnings season marked the 69th consecutive quarter of year-over-year net revenue growth. This improvement can be attributed to organic growth and robust Shutterfly Business Solutions (SBS) segments performance.

Revenues in Detail

Revenues from the Consumers category came in at $152.1 million, down 5% year over year. Decline in revenues from the non-Shutterfly brand as a result of brand shutdowns significantly impacted the segment’s performance. However, the company witnessed growth in Shutterfly brand owing to robust performance at Photo Books and the Wedding Shop.

Shutterfly Business Solutions (SBS) segment’s revenues surged 52% year over year to $47.7 million. The uptick was driven by faster ramp up of a multi-year deal signed with an existing client.

Unique customers declined 4% year over year to 3.2 million and total orders decreased 8% year over year to 5.1 million primarily due to platform consolidation. On the flipside, average order value increased 3% to $29.96 backed by product mix.

Operating Performance

Adjusted gross margin contracted 200 basis points (bps) to 36.9% chiefly due to lower gross margins at Shutterfly Business Solutions.

Adjusted EBITDA (Earnings before interest, tax, depreciation and amortization) of $7.1 million grew $9 million year over year. The reported figure was above the company’s guided range of $3-$5 million backed by careful expense control.

Operating expenses totaled $107.8 million, down 13.3% year over year. As a percentage of net revenues, operating expenses declined 1080 bps year over year to 54%. The downturn can be attributed to platform consolidation.

Balance Sheet

Shutterfly exited the first quarter with cash and cash equivalents of $419.4 million compared with $489.9 million in the previous quarter. Accounts receivables were $54.1 million, down from $82.3 million in the last report. Long-term debt totaled approximately $291.9 million.

Cash used form the operating activities were $124.3 million in the quarter under review. Moreover, Shutterfly has spent $13.2 million on capital expenditures.

Guidance

In 2018, Shutterfly expects overall profitability to increase owing to the acquisition of Lifetouch, which was closed on Apr 2, 2018. Additionally, the company envisions adjusted earnings in the range of $2.83-$3.28 per share, up from the prior guided range of $1.94-$2.38.

Net revenues are projected between $2.01 billion and $2.06 billion compared with $1.22 billion and $1.26 billion, anticipated earlier. Adjusted gross profit margin is estimated to be 62.4%. Adjusted EBITDA is expected to be in the band of $390-$410 million, sharply above the prior estimate of $260-$280 million. Operating income is envisioned in the $185 million to $206 million range. The company anticipates capital expenditures of $100 million.

Furthermore, Shutterfly Consumer revenues are expected to be in the band of $1.02-$1.05 billion, while Shutterfly Business Solutions revenues are projected between $210 million and $220 million. Also, Lifetouch consumer revenues are envisioned in the $780 million to $790 million range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower.

Shutterfly, Inc. Price and Consensus

 

Shutterfly, Inc. Price and Consensus | Shutterfly, Inc. Quote

VGM Scores

At this time, SFLY has a poor Growth Score of F, however its Momentum is doing a lot better with an A. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for momentum based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, SFLY has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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