Can Lifetouch Acquisition Drive Shutterfly’s Q4?

Shutterfly (NASDAQ:SFLY) has had a solid year so far. With three quarters reported, the company’s revenue growth year to date has been nearly 70%, and we expect this trend to continue when the company reports its fourth quarter earnings on February 5. We believe this growth will be primarily driven by the better-than-anticipated performance from the Lifetouch acquisition. This, coupled with the enhanced customer experience and integrated product offering, should further drive its Q4 results. In addition, the operational efficiencies from the consolidation and restructuring program should drive Shutterfly’s operating margin. 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 coming quarters. Below we take a look at what to expect from Q4.

We have a price estimate of $57 per share for the company, which is higher than its current market price. View our interactive dashboard – what to expect from SFLY’s full-year results – and modify the key drivers to visualize their impact on its valuation. Below we discuss some of the key factors that are likely to impact the company’s earnings.

Driven by the Lifetouch acquisition earlier this year and solid performance of its Business Solutions segment, Shutterfly’s revenue increased by just under 70% in the first nine months of 2018. However, a below-par performance from its consumer segment slightly dampened the outlook – due to lower than expected response to its promotional activities. The Lifetouch acquisition holds great potential for the company to re-accelerate its customer growth in the near term. Further, we expect this acquisition should provide access to more than 10 million existing households as well as 1 million new kindergarten households each year. As a result, the larger customer base should likely boost its revenue growth in the coming quarters. Additionally, strategic partnerships with retailers such as Target and CVS, repeat orders from loyal customers, and the Lifetouch acquisition should help the company boost its order count over the long run. As a result of the aforementioned factors, coupled with the holiday season, we expect the company to deliver solid Q4 results.

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