Shutterfly 2010 Annual Report Download - page 33

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 2010 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 vision is to make the world a better
place by helping people share life’
s joy. Our mission is to build an unrivaled service that enables deeper, more personal relationships between
our customers and those who matter most in their lives. Our primary focus is on helping consumers manage their memories through the
powerful medium of photography. 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.
We currently generate the majority of our 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-sized to jumbo-
sized 20x30
enlargements. We currently manufacture these items in our Charlotte, North Carolina and Phoenix, Arizona manufacturing facilities. Our new
manufacturing and production facility in Phoenix, Arizona began operations in April 2009, and replaced our Hayward, California facility, which
ceased operations in January 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, canvas prints, mouse pads, magnets and puzzles. We generate substantially all of our revenue from sales originating in the United States
and our sales cycle has historically been highly seasonal as we generate more than 50% of our revenue during our fiscal fourth quarter. During
fiscal year 2009, we fulfilled 7.9 million orders, to 3.3 million customers, at an average order value of $30.74 per order.
Our high-
quality products and services and the compelling online experience we create for our customers, combined with our focus on
continuous innovation, have allowed us to establish a premium brand. 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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