Here’s Why We Believe Shutterfly Is Worth $80 Per Share

Shutterfly (NASDAQ:SFLY) began the year with a major move to revamp its slowing business – the Lifetouch acquisition. It is one of the biggest acquisitions by the company so far, and has already delivered better-than-expected operational performance year-to-date. With the acquisition, the company’s stock has reached an all-time high of $97.47 per share in June of this year, before falling over the past few months to $62 at present. Further, the efficiencies from the company’s consolidation and restructuring program have bolstered its profitability in the last couple of quarters. We expect the integration of Lifetouch, along with the company’s strategic initiatives, to optimize its technology and a strong focus on building its brands to drive its value in the near term.

We have a price estimate of $80 per share for the company, which is higher than its current market price. View our interactive dashboard – Shutterfly’s Price Estimate and modify the key drivers to visualize their impact on its valuation.

Lifetouch Acquisition

Over the last few quarters, Shutterfly’s top-line growth has slowed down due to the stagnating nature of the business and rising competition. Consequently, the company decided to acquire Lifetouch, a privately-held company focused on family and school photography, to boost its revenue growth. The deal is a strategic fit for the company as the two have a similar target customer base and complementary manufacturing facilities. The merger brings together Lifetouch’s unique access to millions of families that value high-quality photographic portraits with Shutterfly’s cloud photo management, product breadth, and product creation capabilities.

With this acquisition, Shutterfly will have access to Lifetouch’s existing customer base of more than 10 million existing households as well as 1 million new kindergarten households each year. Further, the company will realize cost synergies from a common manufacturing platform, combined purchasing power and scale, and greater utilization due to adjacent peak periods. Accordingly, the company estimates the deal to result in incremental revenues of $935 million and $100 million in adjusted EBITDA in the next one year. Further, it expects notable cost synergies to contribute to the company’s targeted adjusted EBITDA of $450 million by 2020.

New Strategic Initiatives

Post the closure of the Lifetouch acquisition, Shutterfly has altered its reporting structure to include three key divisions going forward – Shutterfly Consumer, Lifetouch, and Shutterfly Business Solutions. Each of these divisions have significant growth opportunities and are likely to benefit from the combined scale and capabilities of the overall company.

Shutterfly has recently launched a “Kids and Pets” category, which is a natural extension to its business. Shutterfly Kids will offers a variety of products for children aged between 4 and 14 years and will include products such as personalized bean bags, duvets, fleece blankets, custom backpacks, school folders, and beach towels. Shutterfly Pets will offer products for both pets and their owners ranging from personalized pet beds, bowls and blankets, to pet tags and bandanas.

Further, the company has launched eight new personalized gifts and home décor products, including ceramic coasters, pot holders, and photo wristlets. These newer products will enable the company to meet its target of doubling the number of new products launched in 2018 versus 2017, which will drive the revenue growth in the near term. In addition to the new products, Shutterfly has been able to reduce the cost and the time required to launch a new product. This will bolster the company’s bottom-line and further contribute to its value in the coming years.

Do not agree with our forecast? Create your own price forecast for Shutterfly by changing the base inputs (blue dots) on our interactive dashboard.