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Shutterfly (SFLY) Shares Dip 21% Over a Year: Can it Rebound?

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Shutterfly, Inc. (SFLY - Free Report) is poised to grow on its product innovation strategy, acquisition of Lifetouch and improved operational efficiency through major restructuring.

However, seasonal demand and vulnerability in consumer spending trends remain concerns. Consequently, shares of Shutterfly have declined 21.3% in a year’s time compared with the industry’s decline of 34.2%.

Growth Drivers

Shutterfly’s growth potential lies in its innovative products and business model differentiation. Continual expansion of its product range is an integral part of Shutterfly’s strategy. The company launched more than 20 new products in personalized gifts and home décor in 2017, in a bid to entice new customers and generate a higher number of orders. Moreover, the company is making progress with Shutterfly 3.0 initiative, under which it created a new photo-management solution by integrating ThisLife technology, which has added features like facial recognition algorithm, hide and filter to its enhanced cloud service. This is expected to improve customer relationships and drive sales over time.

Moreover, the company’s focus on profitable and cost-effective brands widens its competitive moat. This even led to a major restructuring of its existing brands that helped it to improve operational efficiency and create a quality brand portfolio.


The aforementioned strategic efforts have helped the company to report better-than-expected results in the trailing four quarters, with average beat of 57.7%. Meanwhile, in third-quarter 2018, the company marked the 71st consecutive quarter of year-over-year net revenue growth.

We further believe that the company’s deal to acquire Lifetouch, a privately-held online photography entity, will help it to significantly expand customer base and boost consumer segment revenues.

Headwinds

Shutterfly’s high susceptibility to seasonality and consumer spending trends in the United States poses a threat.

Uncertainty in the real estate market and home values, fluctuating energy and commodity costs, along with limited credit availability are the major factors that hurt consumer spending patterns. Unless there is a material change in consumer spending trends, Shutterfly’s revenues will be under pressure in the coming quarters.

Additionally, fluctuations in sales due to seasonal demand for digital camera, driven by vacation and other travel trends, hurt its profits. The company’s business is highly affected by softness in the travel industry due to macro-economic slowdown or political instability.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Computer and Technology sector are Generac Holdings Inc. (GNRC - Free Report) , DHI Group, Inc. (DHX - Free Report) and Remark Holdings, Inc. (MARK - Free Report) . While Generac Holdings carries a Zacks Rank #1 (Strong Buy), DHI Group and Remark Holdings both hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Generac Holdings has an expected earnings growth rate of 37.1% for the current year.

DHI Group has an expected earnings growth rate of 46.7% for 2018.

Remark Holdings’ earnings growth rate for the current quarter is pegged at 76.1%.

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