Shutterfly (SFLY) completed its acquisition of Tiny Prints on April 25 for $333 million, which included approximately $146 million in cash and approximately 4 million shares of Shutterfly common stock. Tiny Prints was a privately held e-commerce company offering stylish cards, invitations, personalized stationery and photo books operating in the same vertical as Shutterfly.
Acquisitions of this nature will help Shutterfly grow its customer base and compete with online services like Hewlett-Packard’s (HPQ) Snapfish, Kodak EasyShare Gallery and American Greetings (AM)’ Photoworks and Webshots brands. Increasingly, Walmart (WMT), Costco (COST) and Sam’s Club also offer low cost digital photography products and services and compete in this market.
Our price estimate for Shutterfly is $65.88, which is around 20% ahead of the market price.
Twin Acquisitions to Aid Revenues and Grow User Base
Shutterfly acquired WMSG last year in November 2010 to boost its commercial printing business. It also hopes to capitalize on WMSG’s technology, analytics and its experienced leadership’s understanding of the commercial printing space. Shutterfly will be attempting to leverage WMSG’s longstanding deep relationships with well-known companies.
On the other hand, we expect the acquisition of Tiny Prints to generate new customers for Shutterfly’s business. Shutterfly earns more than 50% of its annual revenues in the fourth quarter due to sales related to the holiday season. Tiny Prints has a large user base in the cards and photo-cards market, and its Wedding Paper Divas division is solely focused on wedding cards. Orders for the wedding season pick up during the third quarter, which will help reduce the seasonality in Shutterfly’s sales and their heavy reliance on fourth-quarter business. Shutterfly’s increasing disposition for acquisitions signals its desire to scale quickly without having to grow organically, which can be an advantage over other competitors.
Partnerships for Broader Reach
In 2010, Shutterfly partnered with Groupon to offer multiple nationwide flash promotions to more than 10 million Groupon members. They also partnered with Best Buy (BEST) to promote Shutterfly products when customers purchased a qualifying digital camera or camcorder in stores.
Shutterfly’s partnership with Target (TGT) provides an alternate sales channel for their products. In 2010, it also expanded its print-to-retail relationships which enabled customers to pick up 4×6 prints at CVS Pharmacy (CVS) and Walgreens (WAG) stores. These measures have ensured that consumers with limited Internet availability are able to enjoy Shutterfly services, and have also helped it establish an offline customer base.
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