Shutterfly (SFLY 39.97, -5.25, -11.61%) is flying a little lower today after the
company announced a bunch of news items last night. In addition to releasing
earnings and guidance, SFLY also announced that it was recently approached by a
third party as a possible acquisition target and that this kicked off a strategic
review by the company, wherein SFLY engaged with other third parties about a
possible takeover of SFLY. No formal proposals have been made, but management is
committed to exploring its options. If that was not enough, SFLY also announced
that its CEO, Chris North, will step down at the end of August 2019.
Let's try to dissect all these developments, starting with the company’s earnings. SFLY reported Q4 GAAP EPS of $5.19, which was better than expected. Revenue rose 60.0% year/year to $949.97 mln, basically in-line with expectations.
By segment, SFLY had a strong Q4 performance in the Shutterfly Business Solutions category (direct marketing for businesses) and in Lifetouch (school photos), offset by a disappointing performance in Shutterfly Consumer (customized photo products, etc.), which had lower than expected growth of 1%.
The company’s guidance, meanwhile, was rough. For Q1, SFLY expects GAAP EPS of $(2.59)-(2.49) and revenue of $317-328 mln. Both of those metrics are below market expectations. For FY19, SFLY sees GAAP EPS of $0.55-1.06, which is well below market expectations, while revenue guidance was in-line at $2.13-2.21 bln.
The company’s newly created Strategic Review Committee will review alternatives and evaluate the company’s capital structure and capital return policy; Morgan Stanley has been retained as a financial advisor. No exact timetable for the review of strategic alternatives or for specific actionable courses has been laid out yet, and the company reminds that there can be no guarantee that a transaction – in connection with those aforementioned recent engagements with potential suitor third parties, form which no proposals have yet been received, or otherwise – or other outcome will result from the review.
Finally, SFLY announced that its CEO will step down in August 2019 so that he can return to the UK with his family. The Board of Directors has engaged an executive search firm to identify candidates to succeed Mr. North as CEO, and the process is commencing immediately.
In sum, this was a lot to take in, but SFLY needs a shakeup. The company has been struggling for some time now, especially its flagship Consumer segment, which is also its largest segment. SFLY has been struggling with its promotional strategies, and it has been struggling to attract enough new customers.
Its Lifetouch segment has been doing pretty well while its Shutterfly Business Solutions category has been the star of the show – however, it is also the company’s smallest segment. SFLY's largest segment is struggling and its smallest segment is doing well; some changes need to be made. The stock is trading lower, mostly on the weak 2019 guidance, but the prospects of a potential buyout may provide some support. SFLY will be an interesting name to watch in the months ahead as its review continues and it decides what to do.
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