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Analysis: It’s probably a good time to take Shutterfly private

Editor’s Note: The following article is analysis and is not based on inside knowledge of Shutterfly, Lifetouch or any other parties mentioned.

The specter of going photo personalization pioneer Shutterfly going private has lurked for the past five years or more, so the news the company board is again revisiting the issue isn’t a surprise. In 2014, Silver Lake Partners took a 5% stake with intent for doing more, but that fell flat. In 2015, Marathon Partners took another swing, and missed. Is the third time a charm? Let’s take a look.

At The Dead Pixels Society, here are our reasons to believe Shutterfly may be leaving the public markets.

  • The stock market doesn’t ‘get’ photography. The stock market doesn’t really seem to favor digital printing or slow-growth companies, no matter how profitable they are. To make long-term adjustments necessary for growth, the company may have to look beyond the requirements of quarterly reports.
  • New CEO is in the future. CEO Christopher North has already resigned, and the board is searching for a replacement. It’s clearly an opportunity to make a clean start, especially considering the head of consumer imaging, Jim Hitt, is also new. (Bonus unfounded speculation: The next CEO will be a woman with a marketing background. North is a spreadsheet and process guy and now that that house is in order, it’s time to get back to marketing.)
  • Shutterfly isn’t a startup anymore. Closing in on its 20th anniversary, Shutterfly has come a long way since it used homebrew digital minilabs to make the first prints from scanned film. When Snapfish, Ofoto and Shutterfly all launched in the late 1990s, just getting prints from your digital camera was a novelty. Actually, the business model back then was to mail in a roll of film, and get the prints mailed back to you (along with posting online). This was pre-open photo sharing, when keeping customers in your walled garden was a viable tactic. Later, when digital cameras began to yield decent quality, direct uploads and printing took over from film. Today, there is little within the Shutterfly technology set that can’t be replicated by other companies. One way to recognize this is to consider moving out of the pricey Silicon Valley and into Lifetouch’s backyard of Minnesota. The overhead savings would be tremendous.
  • Production is a commodity, and Shutterfly’s strong brand is a key differentiator. Face it, getting into the photo printing business has never been easier. Technologies are readily available from vendors like HP, Canon,  Xerox, or white-label providers, like Centrics, Photo Finale, Mediaclip, District Photo, RPI, ColorCentric and more. If you want to be in the photo printing business, you can make a few phone calls and line everything up (assuming you have the cash and the patience to develop the necessary marketing prowess). The world has changed, and the online photo printing business doesn’t revolve around Silicon Valley anymore. Unlike Kodak and Polaroid, brands that are more popular now because of nostalgia, Shutterfly has never gone bankrupt and has a positive, contemporary feel. The company is here to stay and that means a lot to a customer base where holding on to images is vital.
  • It’s a seller’s market right now. There’s a lot of buzz in the industry these days regarding with investors taking stakes in supposedly mature market companies; examples: Edge Imaging in Toronto and Precision Camera and Video in Austin were both recently revitalized with outside investors. Few would say school photography and camera stores are a booming growth market but they are also profitable if run well.

If Shutterfly goes private, then what?

So, if taken private, what should Shutterfly do? With the Lifetouch acquisition, it’s a huge company with a sterling brand, leadership position, annual profits and impressive production capabilities. The company is literally the “Kodak” of consumer photo printing. As a private company, Shutterfly executives won’t have to listen to dummies compare their company to Instagram.

Yet, there are still holes in its portfolio that can yield further growth.

  • Mobile – Shutterfly claims it has impressive mobile growth but few would say the latest app is top in terms of mindshare.
  • Retail – Shutterfly has no significant retail partnerships. There are lots of opportunities in the home decor and craft space for retail partnerships, such as Jo-Ann Fabrics and Michaels. It’s frankly shocking Shutterfly hasn’t made a big splash with pop-up stores during the key fourth quarter.
  • Home decor – European giant Cewe gets that the future growth is in wall decor, and has purchased WhiteWall. Walmart recently purchased Big money is being spent on this market, and Shutterfly doesn’t have leadership position, as it should.
  • Year-round volume – Shutterfly is vertically integrated with company-owned plants and facilities and the company has ramped up its commercial printing division. With the worldwide glut of color printing capacity, Shutterfly can be very competitive on a cost basis in commercial markets. The addition of Lifetouch has only improved that scenario.
  • International – Shutterfly has opportunities for expansion into developed markets like Canada and Europe, through acquisition. Those are mature markets but well-suited for Shutterfly’s balance of product selection and value.

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