Maybe Muhammad Ali had it backwards. Instead of floating like a butterfly and stinging like a bee, maybe all he had to was sting like a Shutterfly (Nasdaq: SFLY).

Shares of the digital photography e-tailer have had a rough 2008, even before we dig into last night's disappointing fourth-quarter report. (Third-quarter earnings didn't seem to please investors, either.)

Shutterfly's stock fell by nearly 25% last month, partly in reaction to Hewlett-Packard's (NYSE: HPQ) Snapfish slashing prices on its photofinishing services. Price wars are never fun for anyone -- besides the consumers, of course.

Shutterfly may feel that it is immune to cutthroat pricing, given its premium positioning, but the numbers are telling a different story.

The company closed out the year with a 49% revenue surge during the fourth quarter. Earnings rose 26% higher to $0.63 a share. Those are great numbers -- until you put them together. Why is the bottom line only growing at half the pace of the top line? Investors hate to see contracting margins, and they may have to get used to it in the near term.

Shutterfly's near-term outlook calls for a 31% to 37% advance in revenues to between $245 million and $255 million for all of 2008. That's the good part. The bothersome ranges come as the company works its way down through its fiscal guidance. It expects gross margins to clock in between 53% and 55%. It sees adjusted EBITDA margins coming in between 16% and 18% this year. Gross and adjusted EBITDA margins were 55% and 18%, respectively, in 2007. In other words, that's the very top of the ranges for the year ahead.  

I still like Shutterfly. Even as rivals like Snapfish and Kodak's (NYSE: EK) Kodak Gallery try to ramp up their product offerings to match the slick appeal of Shutterfly's photo books and photographic greeting cards, Shutterfly always finds a way to stay ahead of the competition.

In making moves to promote digital scrapbooking and encouraging its users to share their photo books with the user community, Shutterfly is growing its cyberspace stickiness. It may never be Yahoo!'s (Nasdaq: YHOO) Flickr or even American Greetings' (NYSE: AM) Webshots, but these growth vehicles -- if successful -- will help smooth out the seasonality, since Shutterfly is typically only profitable during the holiday quarter.

Keep an eye on margins, though. Any significant deterioration there and you'll feel like you were in the ring with Ali instead of paraphrasing what he said.

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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 has a disclosure policy.