This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Is Apple Slowly Killing Shutterfly and American Greetings?

BOSTON (TheStreet) -- When Apple (AAPL) decides to enter a new market, it quickly becomes the dominant force that trounces all competition. Think phones, tablet computers and, perhaps soon, televisions, if the rumors are to be believed.

But since Apple moved into the greeting-card and online-photo space two months ago, financial analysts appear not to have noticed. It might not be a coincidence that after Apple unveils a new card-printing service, both American Greetings (AM) and Shutterfly (SFLY) get crushed.

On Oct. 4, as Apple introduced the new iPhone 4S handset, buried in the presentation was an announcement of a new app, dubbed Cards, which allows users to take iPhone photos and turn them into greeting cards. Apple has the cards printed and mailed within the U.S. for $2.99 each, postage included. Shares of American Greetings and Shutterfly both fell hard on the day the app was introduced.

Since then, the focus on Apple has been more on the hardware, namely the iPhone 4S as well as speculation over a new iPad 3 and new HDTV, while little attention has been paid to the success of Cards. And rightfully so, as the consumer tech gadgets like the iPhone certainly mean more to Apple's top line than some miniscule contribution from a card-making application.

But for investors in American Greetings and Shutterfly, the pain has been real. Since the Cards app officially launched in Apple's App Store on Oct. 13, shares of American Greetings have dropped 27% and Shutterfly's stock has been cut in half. By comparison, the broad S&P 500 index is up 4.4% since that date and Apple's shares are up 0.6%.

While it's hard to say with certainty that Apple's Cards app has been a roaring success, the woes of these two companies hint that Apple is gaining ground in the greeting card and online-photo space. Last week, American Greetings saw its third-quarter profit plunge by 40%, missing earnings-per-shares estimates by a wide margin, mostly due to cost increases. Operating margins shrank, a trend that will continue into 2012 as the company said cash flow from operating activities would be lower than it had estimated.

Shutterfly also delivered some crummy news for shareholders in time for the holidays last week, cutting its fourth-quarter revenue and profit outlook. Shutterfly blamed the weaker outlook on competitive pricing pressures, saying rivals were sharply discounting their services during the holiday season.

>> Not All Greeting Card Stores Need Sympathies

Analysts, though, have said little recently about Apple's threat to American Greetings or Shutterfly. American Greetings receives scant attention from sell-side analysts, so no one has come to the company's defense. Meanwhile, Shutterfly garners a whopping 11 "buy" ratings from the 13 analysts following the company.

Among those analysts, several brushed off Shutterfly's lowered guidance, saying it was largely expected. On Friday, Jefferies analyst Youssef Squali slashed the firm's price target on Shutterfly to $40 from $65 but still maintained a "buy" rating on the stock, pointing out pricing competition from Hewlett-Packard's (HPQ) Snapfish and American Greetings' Cardstore.com but omitting any mention of Apple.

On Tuesday, Craig-Hallum analyst Mitchell Bartlett dropped his price target on Shutterfly to $32 from $45 but kept his "buy" rating, also noting competition from Snapfish and American Greetings but didn't say anything about competition from Apple. At Morgan Keegan, analyst Justin Patterson also cut his price target to $40 from $55 on Tuesday, but still maintained an "outperform" rating with nary a mention of Apple or the Cards app in his research report.

Barron's, on the other hand, smartly warned investors in Shutterfly (and American Greetings, by extension) earlier this month that Apple and the Cards app was a growing force to be reckoned with.

So whom should investors believe? The choice is between analysts who still say to buy the stocks even as they keep dropping price targets or those who have been warning about Apple's new presence in the online-photo and card space. If competition from other rivals is putting a dent in sales and profits for these companies, it's hard to imagine that environment improving with more iPhone and iPad users after the holidays.

-- Written by Robert Holmes in Boston.



>To contact the writer of this article, click here: Robert Holmes.

>To follow Robert Holmes on Twitter, go to http://twitter.com/RobTheStreet.

>To submit a news tip, send an email to: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,007.96 +25.37 0.15%
S&P 500 1,978.91 +0.57 0.03%
NASDAQ 4,444.9090 -4.6550 -0.10%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs