Brean Isn't Surprised By Shutterfly's CEO Departure, Maintains Outperform

• Shutterfly, Inc. SFLY shares are up 8 percent since November 2, despite having lost 2 percent in the last 5 trading days.
• Baird’s Colin Sebastian maintained an Outperform rating on the company, with a price target of $55.
• CEO’s departure in 2016 does not come as a surprise, and the company could look at other strategic alternatives, Sebastian said.

Shutterfly's CEO Jeff Housenbold plans to resign following the release of Q415 results in February 2016. Analyst Colin Sebastian wrote, “In our view, Mr. Housenbold's departure is not a complete surprise, as we believe the proxy battle last year took a toll, with mixed feelings about management strategy and compensation throughout the process.”

He added that Shutterfly should be able to attract a high-quality CEO in view of the company's “strong competitive position, opportunities in Enterprise, willingness to pay market wages for Internet executives, and potential for solid growth and expanding margins in the coming years.”

While some may see the stepping down of the current CEO as an indicator of the initiatives not progressing as expected. However, recent commentary from management indicates that Shutterfly 3.0 and brand consolidation remain on track.

Sebastian expects Shutterfly to emerge in 2016 after a heavy investment period with “a stronger, and more profitable, mobile-oriented e-commerce model.” He added, however, that margin expansion may be more moderate than is reflected by Street estimates.

Moreover, after the CEO transition, Shutterfly could look at other strategic alternatives, “should there still be interest from private equity,” the Baird report stated.

Although there were some concerns around the company’s 4Q results due to a website outage, Shutterfly has reaffirmed its guidance for the quarter, while indicating that it had record Black Friday and Cyber Monday orders and revenue.