Shutterfly All Eyes on Q4: Revising Estimates

Shutterfly (NASDAQ:SFLY) announced its Q3 2011 results on October 26, posting revenues of $76.5 million, up 56% YOY. Shutterfly’s Tiny Prints acquisition earlier this year was one of the main driving factors behind this boost in revenue. Excluding the effect of the Tiny Prints acquisition, the total net revenue grew 24% YOY. ^[1] Shutterfly competes with services like HP’s (NYSE:HPQ) Snapfish. Apple (NASDAQ:AAPL) recently announced a new iOS app called “Cards”, which could pose a minor threat in the future. Going forward, these are some of the key trends which should impact Shutterfly’s growth and its stock price.

Revenues from Shutterfly’s main business – Personalized Products and Services – grew around 17% YOY. As expected, Shutterfly posted a small loss this quarter. The focus is now on Q4, which is expected to be a breakout quarter for Shutterfly, generating higher revenues than the other three quarters combined. Following the earnings, we have revised our Trefis price estimate for Shutterfly to $53, which is around 25% above the current stock price. This will be reflected on our site soon.

Check out our complete coverage of Shutterfly

Customer Growth Expected to Continue

Shutterfly has been increasing its revenues from its primary business – Cards, Stationery and Photo Books – consistently. We expect it to post record results in Q4 2011, during the holiday season, which has traditionally been its strongest quarter. It had close to 1.4 million transacting customers this quarter, but we expect the number to balloon in Q4 2011 to around 2.6 million, bringing the total number of transacting customers for the whole of 2011 to around 6.7 million. We expect it to continue growing its user base at a steady pace in the coming years.

Tweak this model to see how the number of transacting customers will affect the Trefis price estimate for Shutterfly.

Orders Per Customer and Average Order Value

The average order value this quarter for Shutterfly was close to $24. We expect the average order value next quarter to be considerably higher, which should boost its overall 2011 average order value to $33. We predict a marginal increase in the average order value each year going forward. You can tweak this chart to see how the average order value impacts the Shutterfly Trefis price estimate.

Following the rapid growth in the customer base, we project a gradual decline in the number of orders per customer. This quarter, the orders per customer for Shutterfly was close to 1.7. Next quarter, we expect a boost in this metric, thanks to the holiday season, which should jack up the average for the entire year. Check out this widget to see how an increase or decrease in the number of orders per customer impacts Shutterfly’s price estimate.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Shutterfly’s CEO Discusses Q3 2011 Results – Earnings Call Transcript, Seeking Alpha [↩]