Image source: Shutterfly.

The bigger picture that's developing at Shutterfly (SFLY) may be pretty after all. Shares of the top dog in digital photo finishing products moved 10.95% higher last week after posting better-than-expected quarterly results. An analyst who was previously neutral on the stock also turned bullish.

Net revenue for Shutterfly's third quarter rose 12% to $187.3 million. Its earlier guidance was calling for just $179.2 million to $185.9 million on the top line, and Wall Street pros had perched themselves near the high end at $184 million. It was still a solid beat for Shutterfly. 

Shutterly posted a net loss of $0.86 a share, but that's actually good news. It's a narrowing deficit, and it's also less red ink than analysts were targeting. Shutterfly has historically posted losses through the first three quarters, more than making up for that with a fat profit during the seasonally potent holiday quarter. The market clearly likes the beat on both ends of the income statement.

Axiom analyst Victor Anthony upgraded the stock from a hold to a buy a day later, feeling that the shares are attractive after taking a beating following Amazon.com's (AMZN 1.00%) late September launch of Amazon Prints. Amazon's entry into online photo finishing and photo books sent shock waves through Shutterfly, and rightly so, given Amazon's disruptive tendency to slash prices wherever it goes. However, Anthony feels that the near-term impact of Amazon's arrival will be minimal, at least through the holidays. 

Slowing down

Most of that growth isn't coming from the business that folks typically associate with the brand. The consumer-facing offerings of photo-based products, which account for 77% of Shutterfly's revenue, moved just 4% higher. Shutterfly's business solutions is the arm running with the growth baton these days, with revenue clocking in 47% higher than a year earlier. 

Revenue growth peaked at 54% in 2011, and it's been decelerating every year since then. The third quarter's 12% year-over-year uptick is actually an improvement over the 11% gain it posted during this year's second quarter, but we're now wrapping up what will more than likely be its fifth year of decelerating top-line growth.

This doesn't mean that Shutterfly is doomed, even with Amazon Prints now offering photo books starting at $19.99 and photo prints for as little as $0.09 each. Axiom's Anthony has a price target of $52 on the stock, suggesting 8% of upside even after last week's pop. 

Baird analyst Colin Sebastian also issued an update following the report, sticking to his bullish stance. He doesn't see signs of competitive pressure, though Shutterfly's own guidance calls for growth to slow to the single digits -- for the first time since early 2009 -- during the telltale fourth quarter. Sebastian's more ambitious price target of $59 places a higher ceiling on the stock, but now it's up to Shutterfly to prove that it can continue to gain ground, despite Amazon's arrival on its turf.