Personalized products and service provider, Shutterfly Inc.’s (SFLY) fourth-quarter 2013 earnings per share of $1.20 beat the Zacks Consensus Estimate of $1.09 per share by 10.0%. Though the bottom line declined 14.3% year over year, it was significantly above management’s expectation of 95 cents to $1.00 per share. Earnings were higher than management’s expectation owing to an improvement in the top line.
In the quarter under review, net revenue increased 16.8% year over year to $410.8 million and was ahead of the Zacks Consensus Estimate of $408.0 million by approximately 0.68%. Revenues benefited from the strong performance of the Consumer and Enterprise segments. Revenues also beat management’s guidance range of $392.1million–$405.1 million.
Behind the Headline Numbers
Revenues from the Consumers category were $398.6 million in the quarter, up 16.0% year over year. The category received a boost from increased selling across all of its brands as well as core products like photo books and cards.
Enterprise segment revenues grew 48.0% to $12.2 million in the quarter, thanks to organic growth from existing clients as well as a decent contribution from R&R image, which was acquired in Aug 2013.
In the quarter, the total number of customers was 4.7 million, reflecting an increase of 10.0% from the prior-year quarter. Total orders generated were 7.7 million, up 12.0% year over year. Average order value was $51.80, up 4.0% year over year driven by promotional strategies and integrated marketing campaigns adopted by the company.
Excluding stock-based compensation and amortization, sales and marketing expense increased 26.0% year over year to $14.0 million due to increased investments in integrated marketing campaigns and a modest increase in headcount.
Adjusted EBITDA was $141.9 million, up 11.6% year over year, driven by healthy revenue growth and operational efficiencies.
Full Year 2013 Highlights
Adjusted earnings per share in full year 2013 were 38 cents, which beat the Zacks Consensus Estimate of 23 cents by 65.2%. Though earnings declined 37.8% year over year, they were above management’s expectation of 20 cents to 35 cents per share.
Revenues increased 22.0% year over year to $783.6 million and beat the Zacks Consensus Estimate of $758.0 million by 33.8%. Revenues were also above management’s expectation of $765.0–$778.0 million.
First-Quarter Guidance
Shutterfly’s business is highly seasonal and the company posts losses in the first three quarters of the year.
For the first quarter of 2013, Shutterfly expects net revenue in the range of $132.0–$135.0 million, up 13.1% to 15.7% year over year. The company expects loss per share in the range of 86 cents–92 cents per share in the upcoming quarter. The Zacks Consensus Estimate is pegged at a loss of 41 cents per share for the quarter.
Soft 2014 Outlook
For full year 2014, Shutterfly expects net revenue in the range of $900.0–$920.0 million, up 14.8% to 17.4% year over year. It expects loss per share in the range of 2 cents to 28 cents for 2014, which represents a decline from 2013 levels. Also the guidance range falls short of the Zacks Consensus Estimate of earnings of 36 cents per share.
We believe that the earnings outlook for 2014 is relatively weak. It reflects the termination of the Costco partnership, which is expected to negatively impact results by $15.0 million in 2014. Though the company intends to reinvest funds elsewhere, it does not expect to generate the same efficiencies in other channels as in the Costco partnership.
Depreciation, labor, and equipment costs incurred for expansion and acquisition of manufacturing facilities are also expected to adversely impact profitability in 2014.
Other Stocks to Consider
Shutterfly currently carries a Zacks Rank #1 (Strong Buy). Some other stocks worth considering in the sector include YY Inc. (YY), Angie's List, Inc. (ANGI), and Giant Interactive Group, Inc. (GA). While YY Inc. holds a Zacks Rank #1 (Strong Buy), Angie's List and Giant Interactive Group carry a Zacks Rank #2 (Buy).
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