Shutterfly 2011 Annual Report Download - page 6

PART I
Except for historical financial information contained herein, the matters discussed in this Form 10-K may be considered forward-
looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and subject to the safe harbor created by the Securities Litigation Reform Act of 1995. Such statements include declarations
regarding our intent, belief, or current expectations and those of management. Prospective investors are cautioned that any such forward-
looking statements are not guarantees of future performance and involve a number of risks, uncertainties and other factors, some of which are
beyond our control; actual results could differ materially from those indicated by such forward-
looking statements. Important factors that could
cause actual results to differ materially from those indicated by such forward-
looking statements include, but are not limited to: (i) that the
information is of a preliminary nature and may be subject to further adjustment; (ii) those risks and uncertainties identified under “
Risk
Factors;
” and (iii) the other risks detailed from time-to-
time in our reports and registration statements filed with the Securities and Exchange
Commission, or SEC. Except as required by law, we undertake no obligation to revise or update publicly any forward-
looking statements,
whether as a result of new information, future events or otherwise.
ITEM 1. BUSINESS.
Overview
Shutterfly, Inc. was incorporated in Delaware in 1999. In September 2006, we completed our initial public offering and our common stock
is listed on the Nasdaq Global Market under the symbol “SFLY.” Our principal corporate offices are located in Redwood City, California.
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 generate the majority of our revenues by producing and selling professionally-
bound photo books, greeting cards and stationery,
personalized calendars, other photo-based merchandise and high-quality prints ranging in size from wallet-sized to jumbo-
sized 20x30
enlargements. We manufacture most of these items in our Charlotte, North Carolina and Phoenix, Arizona production facilities. By controlling
the production process in our own 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 print and 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 2010, we fulfilled 9.2 million orders to
4.1 million customers, at an average order value of $32.88 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.
In addition to driving lower customer acquisition costs through viral marketing, our customers provide input on new features,
functionalities and products. Close, frequent customer interactions, coupled with significant investments in sophisticated integrated marketing
programs, enable us to fine-
tune and tailor our promotions and website presentation to specific customer segments. Consequently, customers are
presented with a highly personalized Shutterfly shopping experience, which helps foster a unique and deep relationship with our brand.
Business and Marketing Strategy
We drive business and marketing strategies within three key categories: Personalized Products and Services (“PPS”),
Prints, and
Commercial Print Services. To support our business strategies within these categories, we use a variety of integrated marketing programs,
including advertising, direct marketing technologies and strategic alliances. These methods include direct marketing over the Internet, e-
mail
marketing to prospects and existing customers, search engine marketing, and traditional direct marketing mailings such as postcards and seasonal
catalogs. In addition, because many of our products are either shared over the Internet or given as gifts, the appearance of our brand on the
products and packaging provides ongoing viral advertising. We place targeted advertisements on websites and in publications, contract for
targeted e-
mail marketing services and contract for advertising placement on leading search engines. We also maintain an affiliate program
under which we pay program participants for referral sales generated from hyperlinks to our website from the affiliate’
s website and in
promotional materials.
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