Shutterfly Gets Swatted; Baird Downgrades After Disappointing Q4

Although Shutterfly, Inc. SFLY shares have outperformed through 2016, Baird’s Colin Sebastian believes that the company’s Q4 results “uncovered a couple of product and execution issues previously unknown that depress near-term growth, and along with a revised timeline for completing meaningful platform investments.”

The analyst downgraded the rating on the company to Neutral, while lowering the price target from $59 to $47.

Long-Term Favorable

For the long term, however, Sebastian maintains a favorable view of Shutterfly, given the company’s market leadership, product margins and growth in its online photo segment.

The analyst also believes that management is making decisions that will benefit the company over the medium and long term.

Q4 Results

Shutterfly reported its Q4:16 results at the low end of its guidance, with revenue of $561.2 million, driven by slower sales of the Shutterfly brand cards, as well as persisting decline in non-Shutterfly products.

Consolidated gross margin came in at 59 percent, missing the consensus, largely driven by weakness in the non-core consumer brands.

The consumer segment revenue also missing the consensus forecast, with premium holiday cards and upsells missed the sales targets.

Guidance

Sebastian mentioned that the “2017 guidance reflects further restructuring, moving to single Consumer platform, largely unrelated to Q4 miss.”

Management detailed new plans intended to consolidate and simplify Shutterfly’s brand portfolio to drive operating efficiency and improve customer experience.

“Investments and restructuring will continue in 2017, with FY 2017 revenue and EBITDA guidance of $1.135 billion–$1.165 billion and $210 million–-$230 million, respectively, although management still anticipates growth and margin expansion,” the analyst added.

Sebastian expects further meaningful improvement in 2018, as management targets acceleration in revenue growth and an increase in profit margins.

At last check, shares of Shutterfly were down 15.26 percent at $43.87.