Shutterfly (SFLY) Reports Narrower-Than-Expected Loss In Q1

Shutterfly, Inc. (NASDAQ:SFLY) reported better-than-expected results in the first quarter of 2019. Notably, this marked the company’s ninth straight quarter of earnings beat. Its revenues surpassed estimates after missing it for two consecutive quarters.

Adjusted loss of $2.44 per share compared favorably with the Zacks Consensus Estimate of loss of $2.53 but was wider than the prior-year quarter’s recorded loss of $2.47.

Net revenues totaled $324.7 million, which improved 62.6% year over year and surpassed the consensus mark of $323 million. The sharp increase in the top line was primarily owing to robust performance by the Lifetouch and Business Solutions segment, offset by lower-than-expected Shutterfly Consumer segment revenues. Notably, first-quarter earnings marked the 73rd consecutive quarter of year-over-year net revenue growth.

Segment Results

Revenues at the Consumers category amounted to $148.8 million, down2.1% year over year. The segment’s cost of net revenues increased 6.6% year over year in the first quarter. Margins, as a percentage of total revenues, were negative 5.6%, comparing unfavorably with the prior-year quarter’s margin growth of 1%.

The Lifetouch segment generated revenues of $130 million. This segment was formed following the acquisition of Lifetouch. Revenues from the Shutterfly Business Solutions (SBS) segment declined 2.4% year over year to $46.5 million. The segment’s margins in the quarter grew 7.9%, marking an improvement of 290 basis points (bps) from the first quarter of 2018.

Shutterfly, Inc. Price, Consensus and EPS Surprise

Expenses and Profits

Shutterfly’s total operating expenses in the first quarter of 2019 were $220.1 million, up 104.2% from the year-ago quarter. Total expenses were affected by a whopping increase in sales and marketing costs. Also, higher general and administrative expenses, and costs associated with technology and development hurt overall expenses.

Net Loss in the quarter was $83.6 million, up from $27.2 million in the prior-year quarter.

Balance Sheet

Shutterfly exited the first quarter with cash and cash equivalents of $156.3 million compared with $521.6 million at the end of 2018. Accounts receivables summed $56.7 million, down from $82 million as of Dec 31, 2018. Long-term debt totaled approximately $900 million compared with $1,090 million at the end of 2018.

2Q19 Guidance

For second-quarter 2019, net revenues are projected between $469 million and $479 million. Gross profit margin is estimated to be 51%. Adjusted EBITDA margin is expected to be12.6-13.4%. Operating income is envisioned to be$0-$5 million.

Also, Shutterfly Consumer revenues are projected to be $166-170 million while the same from Shutterfly Business Solutions are likely to be between $48 million and $51 million. Lifetouch revenues are envisioned to be $255-$258 million.

2019 View Remains Same

Net revenues are estimated to be between $2,130 million and $2,210 million. Gross profit margin is expected to be 51.4-51.7%. Meanwhile, adjusted EBITDA is anticipated to be $315-$340 million. Operating income is envisioned to be $80-$105 million.

Also, Shutterfly Consumer revenues are projected to be $975-1,025 million, while the same from Shutterfly Business Solutions are likely to be between $240 million and $250 million. Lifetouch revenues are envisioned to be $915-$935 million.

Zacks Rank & Stocks to Consider

Shutterfly currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space areBrightcove (NASDAQ:BCOV) , Tencent Music (NYSE:TME) and Tucows (NASDAQ:TCX) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings of Brightcove, Tencent and Tucows in 2019 are expected to increase 122.2%, 15.8% and 26.4% respectively.

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