Shutterfly, a leading photo sharing and printing website in the US, yesterday reported their first quartely earnings as a public company after their recent IPO.
Revenues grew in the area of +40% up to $21M, which is decent but far lower that what other much bigger e-tailers as Netflix (+48%, up to $256M) or VistaPrint (+73%, up to $50M) had achieved during the quarter.
While revenues grew, gross margin significantly declined (6 full points) and operational loss doubled as fixed costs also soared with higher R&D, G&A and Marketing expenses.
This once again is very different from Netflix or VistaPrint which posted better margins and greater operational profits...
Stephen Recht, Shutterfly CFO, could proudly declare : "We are extremely pleased with our financial performance this quarter...". At the last Jeffrey Broadview Internet conference in NY last February, Stephen Recht, newly appointed CFO, was a strong advocate of Shutterfly's web 2.0 approach. I at least confirm their finance 2.0 approach when one is extremely pleased to narrow its gross margin by 6 full points vs year ago quarter and to double its operational loss !
How about the free cash flow, a metric I particularily pay attention to as concerning my stock market investments ? Well, picture is not that nice, free cash flow is bleeding and will continue so next year with $20 to 25M capex expected while EBITDA should be at the same level at best. In other words, after 8 years of operations, company will still suck cash...
That's sometimes a bias and an issue with American companies and VCs (not all, of course), they can only think "big", they spend big money, no matter what the operational realities are and what the nitty gritties of businesses are, and whether or not frugality is a key success factor (as it is in most e-commerce businesses). They spend like crazy, travel 1st class where coach class should be the norm, and they simply can not adapt their behavior.
They are just formatted in a certain way which is truly great in some environments, but not in all, and when that's not the case, don't expect them to change !
Back to Shutterfly, the story is an interesting one. They were approached in 2004 by HP, a year when they made $55M revenues. There was no deal for valuation concerns, as Shuttefly estimated they were worth well north of $500M. As a consequence, HP acquired Snapfish which was then much smaller (around $30M sales), was hardly profitable, for the extraordinary price of $300M, 10 times sales...
Almost 3 years later, Shutterfly at long last gets public, raises $80M and is now worth around $300M, ie a bit more than $200M "pre-money", which is less than half the price of a deal they turned down 2 and a half years before !
Sure, Shutterfly is worth something, it has clear growth potential, but one has to be realistic about what it's really worth. Business is extremely competitive, there's no striking long term competitive advantage, so don't expect to juice extraordinary margins from such a business, let alone the capex it requires year after year.
Maybe some people dream, I don't ! Shutterfly's market cap of almost 3 times 2006 sales is reasonnable (considering thre $80M cash raised), and I wouldn't really pay more that that at this point.
I guess it's the time Mr. de Guilhermier to write a post about something created by Stern Steward & co and used by WFM called the EVA :) ?
Posted by: olivier | November 10, 2006 at 08:08 AM
Indian stock market
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Posted by: sharetipsinfo | December 20, 2007 at 07:30 AM