So Shutterfly (NASDAQ:SFLY) is now ready for its close-up. The photo- sharing and digital photo-finishing specialist priced its IPO at $15 Friday morning; the stock opened the trading day at $15.50 and has since inched higher. The deal initially values the company at a little more than $350 million.
For now, the revenue driver at Shutterfly has been merchandise sales. Whether it's a set of double prints, a customized photo scrapbook, or a deck of playing cards with your dog's scruffy face on the back, Shutterfly was into e-commerce before e-commerce was cool.
If you've never used Shutterfly, you probably know someone who has. The company has served up 12 million orders, processing 370 million prints along the way. The site has been used to house a billion different snapshots in digital form (meaning that plenty of users treat Shutterfly as a conventional photo-sharing site, without ever ordering processed prints of their uploads).
Even though Shutterfly has accumulated a deficit of nearly $40 million since being founded in 1999, most of the red ink came on the sudsy side of the dot-com bubble days. The company turned profitable in 2003 and hasn't looked back since.
Yes, the company posted a loss of $3.7 million through the first six months of 2006, but that's how it went last year, too. Shutterfly always closes the year with a wallop as it fills orders for holiday greeting cards and personalized photo-based gifts like calendars and coffee mugs.
The only troubling thing about the red ink in the first half of the year is that the company's loss widened despite a 34% increase in net revenues. Gross margins tightened, and that was compounded by operating expenses going up 57%. Unfortunately, Shutterfly's operating expenses also grew faster than net revenues last year, too. This shouldn't get in the way of a strong finish to 2006, but I always get a little concerned when I see a company cut loose on the purse strings just because it knows that the IPO money is coming in.
I still like Shutterfly. It has been a speedster on the top line, and that's a quick way to get my Rule Breakers juices flowing. It has generated $108.1 million in net revenues over the past 12 months -- a far cry from the $7.5 million that it rang up back in 2001. Most people associate digital photo finishing with sleepy sites owned by printing giants Hewlett-Packard (NYSE:HPQ) and Kodak (NYSE:EK), but Shutterfly has carved a growing niche for itself as the edgy pure play here.
You also have the photo-sharing aspect of Shutterfly that puts it in the company of sites like Yahoo!'s (NASDAQ:YHOO) Flickr and CNET's (NASDAQ:CNET) Webshots. Yes, social networking sites like Facebook and News Corp.'s (NYSE:NWS) MySpace have eaten into that market as a popular place to showcase digital photographs. That still leaves Shutterfly with room to grow, especially if it can attract advertisers that won't eat into the company's flagship photo-finishing business.
So sit still for that photograph, Shutterfly. Just remember that you would be more photogenic if you could keep your costs in check.
Shares of Yahoo! have been singled out to Stock Advisor subscribers. CNET is a Rule Breakers newsletter service selection.
Longtime Fool contributor Rick Munarriz isn't much of a photographer. Do you really need to take the lens cover off first? He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. T he Fool has a disclosure policy.
