Shutterfly (SFLY) Customer Acquisition Costs Remain Well Controlled

Analyst Shawn Milne of Janney Montgomery Scott maintains his "buy" rating on Shutterfly Inc (NASDAQ: SFLY). The fair value for SFLY has been raised from $23 to $26.

According to Janney Montgomery Scott, “One of the key strategic focuses for SFLY is to drive further adoption of photo books, which carry higher AOV/margin than print. The 4x6 print market is $5BN, while the photobook market is in the $400-500M range. Importantly, management indicated that early results from its new easy to use photobook creation tool, “Simple Path”, remains encouraging and incremental to “Custom Path” orders with potential for great frequency (non-gift giving). In Q1, SFLY introduced a new feature on Simple Path, enabling "local" access to photos vs. uploading and continues to “push” the service to where user photos are located. We believe Simple Path has a potential to accelerate 20%+ growth in PP&S.”

Janney Montgomery Scott mentions that Shutterfly is “investing incrementally in its technology architecture in 2010 with the hiring of 30 engineers.” “Management indicated these investments should improve the rendering of products on the site (text, pics), improve E-commerce capability (new checkout process for easier merchandising/cross sell), and increase new referencing engines for product recommendations… Despite a competitive market, SFLY customer acquisition costs remain well controlled with the potential for improvement given the rapid growth in “share sites” (1.7M in 2009), now the largest source of new user registration,” the analyst adds.

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