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Shutterfly Just Can't Take Flight

by
January 18, 2012 2:58 am
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Shutterfly Just Can't Take Flight

Even with US markets gaining strength, Shutterfly’s (NASDAQ: SFLY) engine has been sputtering.

When we started shorting Shutterfly in the summer of last year, it was a mid 50’s stock. Today, it is in the low 20’s.

The latest negative news that took the stock down almost 10% last Friday before recovering to lose only 5% was that its CFO was resigning to join an early stage medical technology company.

While Shutterfly’s downward trend started last summer, the event that marked the turn in sentiment on the company was Apple’s (NASDAQ: AAPL) introduction of its Cards App for the iOS5 on October 4th of last year. On that date, the online photo printing space suddenly found a giant at its doorstep, and competition was certainly going to heat up.

As an Apple customer, I noticed that Apple started sending me promotional email blasts after Steve Jobs passed away. This might just be a marketing change that has long been planned, or it could mean that Apple is changing its approach to sales growth.

It might also be due to increasing competition from Google’s (NASDAQ: GOOG) Android, with its new generation of phones and tablets approaching the fine quality of the iPhone and iPad, but it’s really the topic for another article.

However, one of the promotions I received was about making an iPhoto calendar – one of the strong holds of Shutterfly. It is hard to tell how much business Apple will steal from Shutterfly, but it is certainly not a positive development for the company unless Apple helped to expand the online printing market for everyone.

With Shutterfly’s earnings report due in ~2 weeks, any sales growth slowdown or mentioning of increasing competition causing shrinking margin could cause another drop in the stock.

With that in mind, I do not plan to cover my shorts yet, and might even buy Feb $17.5 puts to speculate on further downside for the stock in the short term.


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