Why Shutterfly Is Worth $57

Shutterfly (NASDAQ: SFLY) has reported robust top line and bottom line performance through the first nine months of the year, driven by better than expected operational performance from the Lifetouch acquisition. Despite this, the stock has fallen significantly from the peaks of $97 (in June, post Lifetouch acquisition) to $40 in recent weeks largely due to a mixed Q3 performance – as a result of weakness in Shutterfly’s consumer segment (down 6% y-o-y in first nine months of 2018) and weak full year guidance. However, the company’s continued efforts at consolidation and its restructuring program have improved profitability in the last couple of quarters. We expect the recently concluded acquisition, coupled with strategic initiatives, to optimize its technology, while a solid focus on building its brands should drive the company’s value in the near term.

We have a price estimate of $57 per share for the company, which is higher than its current market price. View our interactive dashboard – Shutterfly’s Outlook For 2019 – and modify the key drivers such as revenue and margins to gauge the impact on the company’s valuation.

Shutterfly generates revenue from two segments: Consumer, and Shutterfly Business Solutions. The Consumer segment has seen decent growth in recent years as a result of steady growth in average price per order. This was largely due to the favorable product mix, including items such as wedding and premium cards, stationery, photo prints, photo books, and photo gifts. Further, Shutterfly’s focus on aggressively promoting its premium product ranges also boosted the price per order. Additionally, its recent acquisition of Lifetouch – a leader in school photography – should provide access to more than 10 million existing households as well as 1 million new kindergarten households each year. This large customer base should re-accelerate its customer growth and boost its revenue in the near term. Repeat orders from loyal customers, strategic partnerships with retailers such as Target and CVS, and the Lifetouch acquisition should help the company boost its order count over the long run.

Owing to this, we forecast the order count to reach around 31.9 million and the average price to reach roughly $46 by the end of 2019. Consequently, Consumer revenue is expected to be around $1.46 billion.

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