Shutterfly, Inc. (SFLY)

The 1929-1930 equity rally (coming out of The Great Depression) lasted 147 days and the market was up 46%. It has been the same amount of time since the March, 2009 low and we are up about the same percentage. It’s déjà vu (paramnesia), so prepare for a drop of about the same percentage (85%).

Limited moat; earnings growth prospects shaky; sellers will forget about otherwise cheap valuation (on a P/S, P/B basis) the next time the market decides to head south. Also, price tottering right at big resistance at 15, and the CEO was just featured in Forbes. That should be enough :)

SFLY has a too high valuation compared to its sales potential. It also does not distribute any dividend.

If it was going to take off. It would have... putt putt putt....

I can't seriously buy a company where I can change one letter and the resulting word makes me giggle.

This company will most likely get taken over. Has been beaten down quite a bit, but they have a decent presence in the online digital photo market and can be snapped up by some content provider. insider buying also indicates to something happening out there.

Disclosure: SFLY long since mid May.

This is a long term hold. SFLY will continue to do well during Q4.

buy out play around $16 when share price hits 11.50 in mid to late July

Buyout candidate eventually.

A stand-alone company will not survive in this competitive, low-margin world. If they get bought, which should happen, then I will be wrong about the stock price but I expect they will just closely coast down.

I just don't get it. According to Alexa, traffic to their website is down considerably: http://alexa.com/data/details/traffic_details?url=shutterfly.com

This makes sense because people no longer share their photos using shutterfly. Instead, they use flickr or facebook or myspace or whatever.

People who just share their photos and don't buy anything don't do Shutterfly a lot of good anyway, but this was a way for them to get cheap leads. Now, they must rely on return traffic or partnerships (which cost them a lot more per lead than the free photo sharing they used to get).

I just don't see how a site like with no moat, major competitors, decreasing margins (due to the decrease sharing photos effect), and decreased traffic expects to triple its revenues next year and trades at a 100 PE.

I just don't get it.

Who uses this?

Who is buying this at over 100 times earnings? My only logical explanation is that they've discovered time travel and whisked themselves into the late 90s. If they have discovered time travel then maybe it's worth 100 times earnings. If they haven't, well, I wouldn't buy it.

- Incredibly high, ongoing dilution: only if all goes well, EPS in 2008 might match 2006 EPS.

- No clear line-of-sight to positive FCF. FCF is important in this case, as I wouldn't discount the impact of CAPEX (running at a steady 17% of revenues). Much of it is simply capitalized tech spend, plus we should expect continued strong CAPEX to maintain the growth + maintain tech edge.

- A few questionable items, including...

- 25% of 06 EBT due to "Other" Income

- Drop in Accrued expenses from 05 to 06... without this, would not have achieved positive profit growth (adjusting 05 for one-time tax event).

- Market support rests on perfect performance: Already very high expectations built into the price in terms of revenue growth. A slight disappointment may lead to significant pullback.

will be bouht by private equity

I see folks walking around with cameras every where I go every day. This company is very popular in the digital photography hobby arena.

They have a great product line, management team and good name recognition. They will continue to beat estimates.

Shutterfly Inc is an internet based social expression and personal publishing service that enables its customer to share, print and preserve their memories by leveraging on technology, manufacturing, web-design and merchandising capabilities. The company offers a range of products and services for consumers to upload, edit, organize, find, share, create, print, and preserve their digital photos. It also provides photos prints and other physical products to customers both for their own personal use and for giving personalized gifts.

Customers are increasingly becoming more comfortable with using the Internet as a forum for sharing and publishing information in open or permission-based networks. Digital cameras, digital image processing and the internet have dramatically changed the photo-related services market, and have created entirely new ways for consumers to capture, edit, enhance, organize, find, share, create, print and preserve images. The growing use of digital cameras, largely driven by price decreases, has increased the demand for online photo-printing services. It is estimated that the US market for photos ordered over the internet will grow to $1.9 billion in 2009, from $424 million in 2005.

Recently the company announced to open its second state of art manufacturing facility in Charlotte the state of North Carolina, during third quarter of 2007. This new facility will help Shutterfly to meet the increasing consumer demand for its innovative products and services. Also it would increase Shutterfly's speed and efficiency in producing and shipping award-winning products such as photo books, greeting cards and photo prints to its East Coast customers. With a strong revenues and earnings guidance for 2007, the shares of Shutterfly are heading northwards.

As a customer, I see their superior execution in everything. Excellent software, nice promotions and likely to ride on the growth of personal publishing.