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Shutterfly's (Nasdaq: SFLY  ) transformation into a premium photo-products specialist continues. The company's third-quarter results confirm that move, with the company's original photo-finishing business falling by 8%, while its personalized-products segment climbed 32%.

Shutterfly's picked a good place to be, distancing itself from the cutthroat ways of online print specialists like Hewlett-Packard's (NYSE: HPQ  ) Snapfish and Kodak's (NYSE: EK  ) Gallery.

Sure, everyone is hopping on Shutterfly's train of slick storyboard photobooks, greeting cards, and other personalized gifts, but it's an easier stronghold to defend than your basic "pennies a print" photofinishing services. 

Shutterfly's shift ultimately adds up to a 10% surge in overall third-quarter revenue growth to $36 million, ahead of the mere 5% top-line advance that Wall Street was expecting. Shutterfly's quarterly loss of $0.11 a share turned out to be half as bad as Mr. Market was bracing for.

An emphasis on more than prints is serving the company well in other ways, too. The company processed the same number of orders as it did a year ago, but the average size of those 1.7 million orders grew 11% to $21.71. Roughly 78% of the orders were placed by existing customers, a show of customer loyalty that seems to validate Shutterfly's quality .

Unfortunately, things get hairy after that. Shutterfly is only expecting $89.3 million to $104.3 million in revenue during the telltale holiday quarter, well below the $114.9 million analysts were targeting. The midpoint of that wide range is actually below the $97.5 million the company rang up during last year's fourth quarter. Projected profitability of $0.26 a share to $0.49 a share is also well shy of its year-ago $0.63 a share.

The upside for new investors is that Shutterfly is trading well below the $37 high it hit last October. Its fundamentals may have slipped, but the actual share price has disproportionately plummeted into the single digits.

Shutterfly's recent foray into social photo-sharing won't make a dent in industry leaders like Yahoo!'s (Nasdaq: YHOO  ) Flickr or American Greetings' (NYSE: AM  ) Webshots. Its growing business in premium personalized photobooks may also run headlong into consumers' dwindling supply of disposable income.

However, Shutterfly's annual profitability and its skillful positioning during the lull are commendable. It may not be the prettiest picture right now, but shake it for a bit and see what develops.

Three more snapshots to look into:

Longtime Fool contributor Rick Munarriz has never tried to shake it like a Polaroid picture. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy never needs a darkroom.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 04, 2008, at 5:35 PM, asmpsr79 wrote:

    Is this a long term market trend or a Holiday phenom? It seems to me that even more of these type of personalized products will sell during the busy holiday season. Yet, at the same time, people generally have less disposable income as of late, I can’t personally see the need for yet another coffee mug, this one with photos from my recent trip to Hawaii on it. Then again, I can get prints anywhere, and there are only so many places that can put my digital “mug” right on a coffee mug for $10.

    Still, I wouldn’t quite agree that this will lift Shutterfly’s revenue to yet unforeseen heights in the long run.

    Based on thatIn these market conditions, my money is still on Clark Color Labs, who offers the lowest print prices around, at 8 cents each. Even on Sale, Kodak and Shutterfly and the others still don’t come close to that price.

    For more information or to see a detailed review of Clark Color, Kodak, or other top photo sharing companies, check out:


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