Shutterfly Inc. (SFLY) reported adjusted third-quarter 2010 loss of 8 cents per share, lower than the loss of 11 cents in year-earlier quarter and the Zacks Consensus Estimate of 26 cents loss per share. The results were also better of the guidance range of 18 cents to 16 cents loss per share. On a GAAP basis, loss came in at 17 cents versus 25 cents in comparable quarter the last year and the guidance range of 30 cents to 26 cents loss per share. The results were driven by strong demand for photo-book along with considerable contribution from the cards and stationery collection.
In the quarter under review, net revenue increased 21% year over year to $49 million surpassing the Zacks Consensus Estimate of $47 million and the guidance range of $45.5 million to $47.5 million provided by the company. The rise was primarily driven by increased revenues from personalized products.
Behind the Headline Numbers
Revenues from personalized products and services were $32.7 million, up 38% over the prior-year quarter, while print revenues were in line year over year at $15.7 million.
The total number of customers was 1.2 million in the quarter, an increase of 27% from the prior-year quarter. These customers generated about 2.0 million orders, up 20% year over year. Average order value was $23.75, up 3% from the prior-year quarter. Existing customers generated 76% of net revenue with the remaining coming from new customers.
Gross profit margin was 49% compared with 47% recorded in the prior-year quarter. The increase in gross margin resulted from an improvement in product mix as well as lower material costs partially offset by promotional discounts and lower margin commercial print revenues. Adjusted EBITDA was $2.2 million compared with $2.0 million in the prior-year quarter.
Financials
At quarter-end, Shutterfly’s cash and cash equivalents was $160.5 million, compared with $180.7 million at the end of December 2009.
Outlook
For the fourth quarter of 2010, Shutterfly expects net revenue in the range of $148.5 million to $153.5 million, up 13% to 17% from the prior-year quarter. The company expects to post GAAP earnings of 86 cents to 92 cents per share. Excluding one-time items, earnings are expected to range between 97 cents and $1.04.
For fiscal 2010, Shutterfly expects its net revenue to range between $290 million and $295 million, up 18% to 20% year over year compared with the prior guidance of $277 million to $287 million. Excluding one-time items, earnings per share are expected to range between 74 cents and 81 cents versus the prior projection of 66 cents to 75 cents. On a GAAP basis, earnings are estimated between 34 cents and 40 cents compared with management’s prior guidance of 23 cents to 32 cents.
Our Take
We believe product innovation, ongoing strategic partnerships with retailers and opportunistic acquisitions will augur well for the company. Additionally, the company is approaching the fourth quarter, which is seasonally the strongest since it is the holiday season. Shutterfly is poised to capitalize on the upcoming season with the largest holiday collection ever of nearly 1,400 new holiday designs. Hence, we remain positive on the stock.
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