Is Shutterfly Positioned For Growth?

(RTTNews) - This digital retailer's strengths can be seen in multiple areas, such as its strategic investments, introduction of innovative new products & services, strong revenue growth, and its solid financial position. These strengths are, however, offset by weak earnings performance and growing competition.

About the Company

Shutterfly Inc. (SFLY) is a leading manufacturer and digital retailer of high-quality personalized photo-based products and services offered through a family of lifestyle brands. It operates premium lifestyle brands: Shutterfly, Tiny Prints, Wedding Paper Divas, ThisLife, MyPublisher and BorrowLenses.

Proxy Fight In The Cards, Against High Executive Compensation : 'A Wait And Watch Game'

New York hedge fund Marathon Partners Equity Management LLC, which owns 5.45% stake in the company has proposed to nominate three directors to the board, citing concerns about the company's executive compensation.

Marathon said it is particularly troubled by the recent out-of-cycle grant of about $7 million of restricted stock units or RSUs to Shutterfly's CEO, Jeffrey Housenbold, on November 20, 2014. Shareholders have signaled their disapproval of the company's compensation, by dramatically decreasing support and votes from 97.7% in 2011 to 49.8% in 2014.

A shakeup may be a 'wait and watch' game, but can be positive if the activists help the company sell itself.

Restructuring Efforts Are A Plus

To reduce long term operating costs, and consolidate development efforts against a single technology platform, the company is adopting some strategic initiatives Shutterfly said it would shut down its Treat brand and close its sub-scale Elmsford manufacturing facility, to drive increased scale efficiencies and operating margins.

Shutterfly will begin a 15 to 18 month process to build the next generation of Shutterfly - a world-class memory management service connected to its personalized e- commerce solutions .

Dismal Outlook A Negative

For the first quarter 2015, the company expects: net revenues to range from $153.0 million to $157.0 million, which reflects year-over-year growth of up to 14.5%. GAAP net loss per share is expected to range from $1.27 to $1.45, and non-GAAP net loss per share to range from $1.20 to $1.36.

Analysts expect the company to report first-quarter loss per share of $0.88 on revenue of $159.51 million.

The company expect 2015 to be another strong year of growth in its Enterprise business as it expands the business with existing clients and acquire new ones.

For the full year 2015, the company projects net revenues to range between $1.04 billion and $1.06 billion, which reflects year-over-year growth of up to 15%.

GAAP net loss per share is seen between $0.31 and $0.43, non-GAAP per share results between a loss of $0.12 and profit of $0.04.

Analysts expect the company to report fiscal 2015 earnings per share of $0.28 on revenue of $1.05 billion.

The company sees earnings per share above, but revenues below consensus for the first quarter, and fiscal 2015 revenues in line.

The Groovebook Acquisition Is Yet To Prove Its Contribution And Worth

Shutterfly acquired to buy Groovebook for $14.5 million, hoping to monetize the latter's 500k paid subscriber base.

GrooveBook is an iPhone and Android app and subscription service that prints up to 100 mobile phone photos in a 4.5" x 6.5" and mails it to customers every month for $2.99. GrooveBook was featured on the television program, Shark Tank, and worked with investor and mentor, Kevin O'Leary.

Post its 'Shark Tank' appearance, GrooveBook said its paid subscriber count jumped dramatically to 500,000. This would imply approximately $1.5 million in monthly revenues and $350,000 in profit, as Groovebook makes a profit of 70 cents per book.

How Shutterfly will leverage the acquisition is yet to be seen.

The stock is currently trading at $47.28, below its 52-week high of $54.79.