We are downgrading our recommendation on the shares of VistaPrint N.V. (VPRT) to Neutral. VistaPrint’s focus on small business markets provides it with ample opportunity for growth. Additionally, its scale of operation aids in significant margin expansion.
However, we believe that the current stresses in the economy will restrict significant improvements in its top line. Volatile currency movements will also impact the company’s results, as it generates over 40% of its revenue outside the United States.
The company’s first quarter fiscal 2010 earnings were well ahead of the Zacks Consensus Estimate, driven primarily by higher-than-expected revenue growth. Key operating metrics also remained strong during the quarter. However, overhead expenses were higher and referral revenues were lower.
VistaPrint is an online supplier of high-quality graphic design services and customized printed products to small businesses and consumers. The company provides service to more than 8 million small businesses and consumers per year.
The company primarily targets the small-business market, generally businesses or organizations with fewer than 10 employees and often with fewer than 5 employees. This focus presents VistaPrint with a substantial market opportunity, as the company estimates approximately 50 million small businesses of this size throughout the United States, Canada and the European Union. Additionally, there tends to be a significant turnover in this market, as businesses are continually being formed and dissolved.
The scale of VistaPrint’s operation gives small-business customers access to quality products and printing services that would otherwise have been out of their reach. Many of the company’s competitive advantages stem from its advanced use of technology.
VistaPrint has grown at a rapid pace, increasing annual revenues from $6.1 million in fiscal 2001 to $515.8 million in fiscal 2009, and all of its growth since inception has been organic.
However, the company continues to operate in a recessionary environment across its geographic markets. The vast majority of the company’s revenues are derived from small business clients. During periods of slow economic growth or recession, these clients scale down their marketing budgets, hampering the company’s growth.
As the economic conditions remain stretched, we believe that increasing the average order value could prove difficult, as customers become less inclined to order multiple add-on items and stick with their essential needs.
Read the full analyst report on “VPRT”
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