"Our vision is to make the world a better place by helping people share life's joy."
You may want to read that sentence -- from the first page of
IPO prospectus -- once more. It could bea long time, if ever, before another company boasts about such a tenderhearted vision.
Building a better world fits right in with social-responsibility activists, and talking about sharing joy is the stuff of prime-time TV commercials. But this is the stock market, where a better world is one where prices rise and joy is measured by an investor's ability to take money from the pocket of a less clever player.
So, it's a coldhearted bit of irony that Shutterfly's stock, priced at $15 at the offering and blipping happily up as high as $16.73 on its first day of trading Sept. 29, closed Friday at $12.83.
That was 15% below its offering price and down 23% from its high trading point right after its
Such a drop is steep enough to induce
flashbacks.Vonage went public at $17, rose on its first day, but eight days later closed at $12.32, a 27% drop.
Shutterfly's post-IPO slump is nowhere near as severe, but it's enough to prompt investors to bail out.
And that raises the question of whether Shutterfly deserves a second chance. It's not a red-hot Internet star that will help revive what some consider a constipated pipeline for tech IPOs. It wants investors to think it's more like a dot-com survivor that, because it's in a promising niche, squeaked into the public markets and grabbed $87 million to fortify itself in an ever-competitive market.
So, what do investors get with Shutterfly? They get a photo-sharing site competing against hundreds of other photo-sharing sites, some of which -- like
Flickr and upstarts Photobucket andSmugmug -- have hard-core, loyal users uploading their photographs for others to see.
Unlike those, Shutterfly is going after the less sophisticated photographer -- one sharing family and vacation photos with loved ones, enabling them to order prints with a minimum of hassle. Smugmug is about showing off your camera skills; Shutterfly is about eliminating the hassle of taking your Kodak roll to the drugstore.
Given that stores such as
, using technology fromcompanies such as
, are making photo-editing and printing easy and intuitive tasks at your local big-box retailer, Shutterfly's service seems to be at risk.
Reading Shutterfly's prospectus, it's clear that this is a company that went public not just to enrich its founders but to raise money to strengthen itself. Flickr and Smugmug may have their hard-core loyalists, but the online-photo market is still evolving, and a relatively unknown player like Shutterfly could, with ample resources,become a force to be reckoned with.
It will clearly be an uphill battle. According to data from Hitwise, Photobucket had a 44% share of the online-photo market in June, with Yahoo! Photos in second place. Shutterfly trailed at the No. 10 spot, with a market share of 1.8%.
But Shutterfly has been pumping a lot of money into its operations in hopes of winning a bigger audience. Technology costs soared 63% in the first six months of 2006 from the same period in 2005, while sales and marketing costs rose 59% and general and administrative costs rose 48%.
That compares with a 34% growth in revenue, which totaled $36.5 million in the most recent six months. As a result, the company's operating loss grew from $1.4 million in the first half of 2005 to $6.1 million in the first half of this year. Gross profit margin, meanwhile, fell from 51.4% to 49.3%.
Shutterfly is hoping the extra money it made from its IPO could help it finance expansion and possibly growth into a company that can rival Yahoo! and Photobucket. But will it be enough? Photobucket has a strong early lead and says it was profitable last year while financing itself primarily through earnings.
Photobucket isn't publicly traded. Shutterfly is, so it's the rare pure play for investors who are interested in the growing online-photo market. Unlike Photobucket, which is designed to enable users to easily share photos and have them linked to on other Web sites, Shutterfly wants to be the company that develops those digital photos.
To that end, Shutterfly is putting some of the $87 million it raised toward site infrastructure and "new manufacturing facilities and on improvements to our new and existing manufacturing facilities, with the remainder to be allocated for the purchase of Web site infrastructure equipment."
In addition, Shutterfly wants to spend some of the money it raised on marketing to draw more people to its service. All of this is a tall bet that may yet pay off for investors who want to believe in the principle that the company that is first into the public market will win the race.
The rest of us will want to see hard proof on the bottom line. That means Shutterfly will probably stabilize below its offering price until it can prove it will turn the money it recently raised into lasting profits.
Anyone who bought into the IPO will have to wait until then to feel the joy of seeing a return on their investment.