| | Shutterfly Preps For Its Close-Up
Danit Lidor 06.29.06, 5:45 PM ET
forbes.com
Photo printing website Shutterfly is poised to leave the nest. Should investors support the move?
The Redwood City, Calif., company announced Thursday that it intends to raise $92 million in a public offering; Jim Clark, co-founder of Web browser pioneer Netscape, owns more than 40% of the company.
The documents the company filed with the U.S. Securities and Exchange Commission describe Shutterfly as a fast-growing, profitable outfit. But they also note the challenges the company will face going forward.
Shutterfly allows users to store their digital photos on its Web site, where they can share them with friends. The company makes most of its money, 91%, by charging users for prints of the images.
The company's revenue shot from $54 million in 2004 to $84 million in 2005, a 55% jump. And profits moved much more quickly in the same period, shooting from $4 million to $29 million--a 625% jump.
But Shutterfly's recent results aren't nearly as rosy. In the first three months of 2006, the company posted revenue of $17 million, up from $13 million in the prior year, but its losses more than doubled, from $683,000 to $1.7 million. The company, which typically makes most of its money during the fourth-quarter holiday season, said most of the increased losses were attributed to a change in the way it accounts for stock options.
More worrisome for Shutterfly is the growing crowd in the online photo business. InfoTrends analyst Alan Bullock says consumers are now spending about $300 million a year on online photo prints and photo merchandise, such as mugs and calendars. Shutterfly is the No. 2 player in the business, behind Eastman Kodak's (nyse: EK - news - people ) EasyShare Gallery and in front of Hewlett-Packard's (nyse: HPQ - news - people ) Snapfish.
But online users are increasingly gravitating toward photo-sharing sites that don't depend on prints for revenue, like Yahoo!'s (nasdaq: YHOO - news - people ) Flickr. Internet traffic analysis firm Hitwise says Shutterfly was the tenth most visited photography site in May.
In 2005, Shutterfly allotted $15 million for marketing and advertising--by far its biggest operating expense. But it is still lacking in the brand recognition of Kodak's EasyShare Gallery or the cool factor of Flickr. To stay competitive, the company might have to invest even more in its premium image. Shutterfly charges 19 cents per print, while rival sites are about 10 or 12 cents each. And the company doesn't have partnerships with local Wal-Mart Stores (nyse: WMT - news - people ) or other retail locations where customers can pick up prints rather than wait for mail delivery. (See " HP To Offer In-Store Prints.")
The imaging industry has been struggling to adapt to the new digital world. Many companies are hoping that customers will return to making prints rather than simply storing photos on their hard drives. (See " Photo Industry Sees Future In Printing.")
The online photo-sharing market, which is a large part of this "push printing" strategy, is still in its infancy, but it's growing fast. According to the Photo Marketing Association, in 2 |
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