Shutterfly 2009 Annual Report Download - page 45

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document, including the following Management’s Discussion and Analysis of
Financial Condition and Results of Operations, contains
forward
-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of
1934 that are based upon our current expectations. These forward-looking statements include statements related to
our expectations regarding
the seasonality of our business, the decline in average selling prices for prints, our capital expenditures for 2009 and the sufficiency of
our cash
and cash equivalents and cash generated from operations for the
next 12 months and our ability to grow our personalized products and services
as a percentage of our total revenues, as well as other statements regarding our future
operations, financial condition and prospects and
business strategies. In some cases, you can identify forward-looking statements by terminology such as “project,” “believe,” “anticipate,”
“plan,” “expect,” “estimate,” “intend,” “continue,” “should,” “would,” “could,” “potentially,” “will,” or “may,”
or the negative of these
terms or other comparable terminology. Forward-looking statements involve risks and
uncertainties. Our actual results and the timing of events
could differ materially from those anticipated in our forward-looking statements as a result of many factors,
including but not limited to, the
seasonality of our business, whether we are able to expand our customer base and increase our product and service offering,
competition in our
marketplace and the other risks set forth below under “Risk Factors” in Part I, Item 1A of this report. Given these risks and
uncertainties,
readers are cautioned not to place undue reliance on such forward-looking statements. We assume no obligation to update any of the forward-
looking statements after the date of this report or to compare these forward-looking statements to actual results.
Overview
We are an Internet-
based social expression and personal publishing service that enables consumers to share, print and preserve their
memories by leveraging our technology, manufacturing, web-
design and merchandising capabilities. Our primary focus is on helping consumers
manage their memories through the powerful medium of photos. We provide a full range of personalized photo-
based products and services that
make it easy, convenient and fun for consumers to upload, edit, enhance, organize, find, share, create, print and preserve their memories in a
creative and thoughtful manner.
Consumers use our products and services to stay connected to their friends and family, to organize their memories in a single location, to tell
stories and to preserve their memories for themselves and their children. Our customers purchase physical products both for their own personal
use and for giving thoughtful and personalized gifts such as photo books, calendars, greeting cards, stationery and other photo-
based products
and merchandise.
We currently generate the majority of our net revenues by producing and selling professionally-
bound photo books, personalized calendars,
greeting cards and stationery, other photo-based merchandise and high-quality prints ranging in size from wallet to jumbo-
sized 20×30
enlargements. We currently manufacture these items in our Charlotte, North Carolina manufacturing facility. In January 2009, we ceased
operations in our Hayward, California facility and expect to begin operations in a new manufacturing and production facility in Phoenix, Arizona
by the second quarter of 2009. By controlling the production process in our own manufacturing facilities, we are able to produce high-
quality
products, innovate rapidly, maintain a favorable cost structure and ensure timely shipment to customers, even during peak periods of demand.
Additionally, we sell a variety of photo-
based merchandise that is currently manufactured for us by third parties, such as calendars, mugs, mouse
pads, coasters, tote bags, desk organizers, puzzles, playing cards, multi-
media DVDs, magnets and keepsake boxes, notebooks, notepads, address
labels and stickers.
Our high-
quality products and services and the compelling online experience we create for our customers, together with our focus on
continuous innovation, have earned us numerous third-
party accolades and, more importantly, have allowed us to establish a premium brand. We
believe that we realize the benefits of a premium brand through high customer loyalty, low customer acquisition costs and premium pricing.
Our customers are a central part of our business model. They generate most of the content on our service by uploading their photos and
storing their memories. In addition, they share their photos electronically with their friends and families, extending and endorsing our brand and
creating a sense of community. Finally, by giving Shutterfly-
branded products to colleagues, friends and loved ones throughout the year,
customers reinforce the Shutterfly brand. Through these various activities, our customers create a viral network of new users and customers.
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