Shutterfly Inc. (SFLY, Financial) recently reported its first quarter earnings for fiscal 2015. The company logged a loss of $45.1 million for the quarter, translating to a GAAP net loss of $1.19 per diluted share. Although the company beat the consensus estimate of an EPS loss of $1.33 a share, Shutterfly’s earnings came in much lower than the year-ago quarter’s loss of $34.2 million or 89 cents a share. Following the results, Shutterfly shares swung between an intra-day high of $46.35 and low of $43.33 before closing at $45.2.
High Expenses Drag Down Earnings
Shutterfly posted 16.7% growth year-over-year in revenues to $160 million for the quarter, beating the consensus estimate of $156.2 million and representing Shutterfly’s 57th consecutive quarter of year-over-year net revenue growth. While the company saw a 14% year-over-year growth in revenues from its Consumer operations to $148.8 million during the quarter, Enterprise revenues came in at $11.2 million, up a whopping 73% year-over-year.
However, Shutterfly logged a drop in gross margin from 44% during Q1 2014 to 41% for Q1 2015, with the gross profit margin from Consumer operations coming in at 45.7% of total revenues and gross margin from Enterprise operations standing at 11.6% of net revenues. Operating expenses for the quarter stood at $94.9 million, excluding costs of $16.6 million related to stock-based compensation. Consequently, the online photo company’s non-GAAP net loss for Q1 2015 stood at $1.11 a share, after adjusting for costs and one-time gains, compared the the year-ago quarter’s loss of 82 cents a share. The company’s adjusted EBITDA stood at a loss of $0.9 million compared to the prior-year quarter when Shutterfly logged income of $0.2 million.
During the first quarter of 2015, Shutterfly saw a 25% year-over-year increase in its customer base to 3.2 million. While orders totalled $3.2 million, up 33% year-over-year, the company saw a 15% year-over-year drop in average order value to $28.86. Without considering the acquisition of Groovebook, Shutterfly’s average order value stood at $32.40, representing a 4% year-over-year decline.
The Road Ahead
Following the results, Shutterfly, which competes with businesses such as Eastman Kodak Company (KODK, Financial) and Hewlette-Packard Company (HPQ, Financial) in the online photo-printing market, also announced its guidance for the second quarter of fiscal 2015. The company projected revenue in the $175.5-$179.5 million range for Q2 2015, representing a 10.3% to 12.8% year-over-year growth but falling short of the consensus estimate of $180.9 million. Further, although Shutterfly projected non-GAAP gross profit margin of 45.4% to $46.1% of net revenues, the company expects to see non-GAAP operating loss in the $18.4- $15.4 million range, translating to an EPS loss of $1.02 to $0.99 a share for the quarter. For the full fiscal 2015, Shutterfly expects to log revenues in the $1.05 billion to $1.06 billion range and an earnings loss of $0.14 to $0.12 per share. This compares to the consensus estimate of an EPS loss of $0.31 a share for FY2015.
Final Thoughts
Shutterfly reported wider loss for Q1 2015 compared to the year-ago quarter on the back of increased expenses, although revenues increased by nearly 17%. However, the company’s revenues and EPS beat the consensus estimate figures. The company’s opportunistic acquisitions, aggressive promotions, affordable prices, improved offerings in the mobile e-Commerce segment and easy-to-use product portfolio have stood Shutterfly in good stead. Moreover, the company expects to put into operation certain strategic initiatives to reduce operational expenses in the near term while creating an integrated technological platform, which experts believe would boost revenues, going ahead. Experts are looking at an average annual earnings growth rate of 24% for Shutterfly. Although the company is projected to perform below par during the forthcoming quarters of the current fiscal, a peak is expected in FY2016. Consequently, the Shutterfly stock currently carries a ‘buy’ guidance for the mid to long-term.
