Shutterfly Inc. (SFLY) inked a deal to acquire Sunnyvale, California-based Tiny Prints Inc. for $333 million. Tiny Prints is a privately -held company that operates tinyprints.com and weddingpaperdivas.com, two fast growing e-commerce brands. The acquisition will enable Shutterfly to step up its core cards and stationeries business.
Tiny Prints is a rapidly growing company and operates a vertical similar to that of Shutterfly, which makes the acquisition a strategic fit. Shutterfly expects this merger to provide the company greater scale of advantage in its cards and stationery business, which will likely exceed $210 million in revenue for calendar year 2011.
Per the agreement, Shutterfly will take over all the shares of Tiny Prints against a cash payment of $141 million as well as in exchange for 3.9 million shares of Shutterfly common stock. In addition, Shutterfly will set aside approximately 1.4 million shares of common stock as consideration for the equity award toward Tiny Prints employees.
We continue to be impressed with Shutterfly’s outperformance in its core business, which were largely benefited by robust growth in Personalized Products and Services (68% of total revenue in fourth quarter 2010). Increased demand for photo-book and card as well as stationary collection drove this segment.
The leading Internet-based social expression and personal publishing services company commented that in the U.S. alone, the market for social expression products including one-for-one greeting cards, birthday cards, holiday cards, baby and wedding announcements, personalized stationery, and online greetings approximate $12 billion in annual sales.
Presently, Shutterfly operates in less than 5% of this market, which is being transacted online. With this acquisition, Shutterfly can accelerate its pace of innovation, deliver cost-effective personalized products and strengthen its core business.
Shutterfly management also increased the revenue guidance for the first quarter of 2011 to the range of $53–$55 from the prior range of $52–$53 million. Moreover, the first half of 2011 will likely see the introduction of a new photo book platform. Management commented that the new platform will combine the two current platforms (simple and custom path platforms) into one.
The company’s competitors include LookSmart Ltd. (LOOK), Snapfish owned by Hewlett-Packard Company (HPQ), and Photoworks and Webshots brands of American Greetings Corp. (AM). These companies offer certain services similar to those of Shutterfly, in some cases at lower price points.
Shutterfly currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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