One of the stocks bucking last week's sell-off was Shutterfly (NASDAQ:SFLY), soaring 39.8% after posting blowout financial results, announcing the acquisition of Lifetouch, and attracting a couple of upbeat analyst notes. Shutterfly was last week's second-biggest gainer among stocks with market caps north of $1 billion. 

The leading provider of digital photofinishing products posted $593.8 million in revenue during the holiday-spiked quarter, a mere 6% increase over the prior year, but well ahead of the $538 million to $568 million it was targeting three months earlier. Analysts were bracing for flattish year-over-year growth.

A spike in business-solutions revenue offset a flat showing on the larger consumer-facing front. Shutterfly was able to do more with less as it completed a restructuring last year that saw it trim 13% of its workforce and shut down three of its sister sites including MyPublisher in May, to focus on its namesake and Tiny Prints brands. 

Shutterfly's results were just as impressive on the bottom line. The rejuvenated dot-com pioneer cranked out an adjusted profit of $3.11 a share, above its earlier outlook for a per-share showing between $2.60 and $3.00. 

An assortment of photo-based mugs, prints, books, and pillows from Shutterfly.

Image source: Shutterfly.

A pretty picture

Shutterfly may be simplifying its operations by narrowing the number of platforms and apps it's supporting, but it doesn't mean that it's not afraid to make big bets on consolidation. Shutterfly announced the purchase of Lifetouch, the leading provider of school snapshots.

Lifetouch generated $963.9 million in revenue and $111.3 million in earnings before interest, taxes, depreciation, and amortization in its fiscal 2017. It will move the needle at Shutterfly, as the $825 million cash transaction is roughly a third of its total enterprise value. Shutterfly expects a springtime close to the purchase that it will finance by taking on new debt and temporarily suspending its share-buyback efforts. 

Baird analyst Colin Sebastian likes the deal, boosting his price target on Shutterfly from $50 to $68, while sticking to his previous neutral rating. Lifetouch will be accretive to future financial results, and it will widen Shutterfly's Rolodex. Lifetouch photographs 25 million children annually, representing 10 million households that Shutterfly can now access with additional merchandise. A million new homes hop on the rolls when their firstborns hit kindergarten. 

The more bullish Youssef Squali at SunTrust is lifting his price goal on the stock from $60 to $70, to go along with his buy rating. He sees positive momentum building for the consumer segment, and he also likes the synergies that make the Lifetouch deal so compelling. 

Shutterfly will still have its challenges. Revenue growth has decelerated every year since peaking in 2011. The Lifetouch deal will technically reverse that trend this year, but the key to organic revenue acceleration rests on the purchase spurring cross-selling opportunities. Shutterfly also finds itself butting heads with tech giants wanting a piece of this market, but its invisible moat consists of the more than 30 billion digital snapshots it's already storing from more than 10 million active customers in a niche where the switching costs can be laboriously time-consuming.

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