Shutterfly Earnings Preview: Fourth Quarter 2008

Shutterfly [[SFLY]] is scheduled to report their fourth quarter 2008 results after the market closes on Wednesday, February 4. Based on our analysis, we at are expecting SFLY to report disappointing results that fail to meet Wall Street’s expectations.


Analyst Expectations

We are forecasting revenues of $93.8 million and EPS of $.35. This would represent a 4% decline in revenues from last year’s $97.5 million in the same period. The current analyst consensus calls for revenues of $96.7 million and $.38 EPS. On October 22, the company provided fourth quarter guidance for revenues of $89.3 – 104.3 million and EPS of $.26 – .49.


We believe the combination of declining traffic, reduced consumer spending, and aggressive promotion activity could lead to disappointing quarterly results.


Website traffic appears to have declined 7-8% from last year. This is particularly troubling given that the fourth quarter generally represents over 50% of the company’s annual sales. It also would indicate that the company’s promotional efforts were not very efficient drawing traffic to their site.


Given the current recessionary economy, we are not surprised to see consumers reduce spending on discretionary products. Unfortunately, companies such as Shutterfly feel the effects of this cost-cutting as demand evaporates for their products.


We would also expect the company to be very conservative with their 2009 guidance given the current state of the economy. Wall Street is still expecting the company to grow this year, but we wouldn’t be surprised to see the company guide to a decline in revenues in 2009.


Share Performance

Shutterfly’s shares are down 7% since the beginning of the year. Unfortunately, they appear to be continuing on the negative trend of 2008 when the shares dropped 73% to badly underperform the 34% drop in the Dow Jones index. 



Shares are now trading at 0.8x consensus 2009 revenue estimates. This is basically inline with their peer group. While shares have fallen tremendously in recent months, we believe that 2009 could be a very difficult year for the company. So we would expect further drops in the stock price.


Recommendation: Sell with a $6 price target.


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