On Dec 31, 2014, we issued an updated research report on Shutterfly, Inc. (SFLY).
On Oct 29, this leading provider of personalized products posted the third-quarter 2014 results. Third-quarter loss per share of $1.12 was narrower than the Zacks Consensus Estimate of a loss of $1.17, backed by year-over-year rise in the top line. Also, the company's loss was within management's expectation of a loss of $1.11 to $1.14. However, it was wider than the prior-year quarter loss of 24 cents due to higher operating expenses.
Net revenue increased 15.4% year over year to $142.0 million. Revenues were also within management's guidance range of $140.5 to $143.0 million. Revenues benefited from the strong performance of both Consumer and Enterprise segments. However, it missed the Zacks Consensus Estimate of $144.0 million by approximately 1.4%.
In the quarter, the total number of customers was 2.5 million, reflecting an increase of 6% from the prior-year quarter. Total orders generated were 4.2 million, up 7% year over year. Average order value was $30.63, up 5% year over year driven by promotional strategies and integrated marketing campaigns adopted by Shutterfly.
We are encouraged by the company’s innovation program. The company has been introducing several products, styles and premium options to its existing portfolio of high-quality personalized products and brands. These innovations and investment in consumer oriented programs are expected to improve the customer base, going forward, thereby adding to both the top and bottom line.
Further, Shutterfly has beefed 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 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 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 #3 (Hold). Other stocks in the same industry that can be considered include LiveDeal, Inc. (LIVE), Spark Networks, Inc. (LOV) and China Distance Education Holdings Limited (DL). All these stocks carry a Zacks Rank #2 (Buy).
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