Strong Competitive Advantage
The main competitive advantage that Shutterfly holds over its prime competition is that the printing facilities are located in-house. Contrary to that, many of its competitors outsource their printing requirements, which leads to higher operational cost and delivery times.
In addition, American Greetings’ strategy to shut down the free photo storage website may not settle well with its consumers. The shut down may lead to the alienation of its consumers and an eventual shift to Shutterfly. Furthermore, Snapfish, which was acquired by Hewlett-Packard Company (NYSE:HPQ), has been struggling to maintain its ground again. Moving forward, HP is expected to sell the unprofitable photo print segment. Conversely, Shutterfly seems to have the most diverse and well positioned offerings in the online printing space, and the company is poised to gain from potential international expansion and the mobile app SBU.
Competitor Highlights
HP’s services include technology service outsourcing, business process outsourcing, printer and ink cartages. In addition, they also provide servers and storage. In 2011, HP acquired HIFLEX (software solution for print industries). American Greetings is one the largest greeting card company. The company primarily deals in paper and electronic greeting cards. It also has an online printing segment that currently competes with the likes of Shutterfly and Snapfish. Apple primarily deals in Desktops, Notebooks, Software Services, and Peripherals. They compete with Shutterfly in the mobile apps business.
Industry Drivers
The printing industry may be declining as a whole; nevertheless, customized printed products like cards, calendars, and print on canvas are extremely lucrative and present a huge opportunity for growth. Photo merchandise like customized calendars, print on canvas, greeting cards are showing rapid growth globally as the quality of product customization and logistics improve. The acceptance of e-commerce as a whole and growing consumer awareness via smart marketing and various TV campaigns is driving the online photo printing industry.
Robust Financials
Shutterfly is currently trading at its highest levels. The projections by Trefis suggest that the revenues are set for a CAGR of 10.63% till 2019. The current trading price is $42 which is nearly 99% of its 52 week high. In 2012, Shutterfly broke the consensus EPS by posting $1.50. The PE ratio in 2012 was 43.20, however the 12 month forward PE is 89.15 which may suggest that the stock may be overvalued and is demanding a higher price relative to earnings. Nonetheless, it must be noted that companies with faster growth rates and promising industry outlook will ask for a premium on their stocks relative to companies that grow at a slower rate and involve a higher level of risk. The PE ratio can suggest a lower intrinsic value for Shutterfly’s stock, however our estimate is that a higher PE of Shutterfly is due to faster and more promising growth prospects relative to competitors.
The article Shutterfly Promises Robust Returns originally appeared on Fool.com and is written by Sujata Dutta.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
