Shutterfly Defies Industry Trend, Stock Up 118% In 6 Months

The past six months have not been quite encouraging for Internet-Content industry. However, Shutterfly, Inc. (NASDAQ:SFLY) from the same industry has managed to look past the adversities. In the past six months, the industry has declined 7.5% against the S&P 500’s gain of 4.3%. This sluggish performance was somewhat mitigated by Shutterfly’s exceptional run in the bourses. Shares of the company have rallied 117.8% in the same time frame. Let’s find out the factors behind the stock’s upsurge.

Impressive Quarterly Results

Shutterfly’s shares witnessed a sharp gain after the company reported better-than-expected results in first-quarter 2018. While the bottom line came ahead of the Zacks Consensus Estimate for the fifth straight quarter, the top line surpassed the same for the third consecutive quarter. In fact, the first-quarter earnings season marked the 69th consecutive quarter of year-over-year net revenue growth. This improvement can be attributed to organic growth and robust performance of the Shutterfly Business Solutions (SBS) segment.

Major Restructuring

In the fourth quarter of 2017, this Zacks Rank #1 (Strong Buy) company has completed restructuring activities. Also, Shutterfly closed many of its brands in order to focus more on profitable and cost-effective brands. In June 2017, Tiny Prints — the company’s second largest consumer brand — was shut down, after shifting Tiny Prints’ customers to Shutterfly.com. Notably, Shutterfly has created a Tiny Prints boutique on a dedicated tab on Shutterfly.com. BorrowLenses was also put under a strategic review and ultimately the company decided to retain and operate this business. This is because it is growing at a modest growth rate and generates positive cash flow. The company had also announced its plan to focus on the new Shutterfly Wedding Store as a part of its wedding strategy, which includes a premium Wedding Paper Divas-branded stationery collection.

Lifetouch Acquisition, a Major Catalyst

On Jan 30, 2018, Shutterfly stated that it has signed a contract to acquire Lifetouch — a privately held online photography company — for $825 million cash. The deal closed on Apr 2, 2018. We believe that the buyout will help Shutterfly expand customer base and boost its consumer segment revenues significantly. It will also prove accretive to the company’s profitability by adding approximately $780-$790 million to its adjusted revenues and $100 million to its adjusted EBITDA over the first nine months of operations. By 2020, Shutterfly targets a minimum $450 million of adjusted EBITDA.

In 2018, the company expects overall profitability to witness an uptrend owing to the acquisition of Lifetouch. Additionally, adjusted earnings are anticipated in the range of $2.83-$3.28 per share, up from the prior guided range of $1.94-$2.38. Net revenues are projected between $2.01 billion and $2.06 billion compared with $1.22 billion and $1.26 billion, anticipated earlier.

Other Stocks to Consider

Some other stocks worth considering from the same space include Global Eagle Entertainment Inc. (NASDAQ:ENT) , TechTarget, Inc. (NASDAQ:TTGT) and XO Group Inc. (NYSE:XOXO) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Global Eagle Entertainment have gained nearly 26% in the past three months.

TechTarget has an impressive long-term earnings growth rate of 20%.

XO Group’s earnings surpassed the Zacks Consensus Estimate in each of the trailing three quarters.

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