Shutterfly 2011 Annual Report Download - page 30

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 and growth of our business, the impact on us of general economic conditions, trends in key metrics such as number of customers
and orders and average order value, the decline in average selling prices for prints, our capital expenditures for 2011, the sufficiency of
our
cash and cash equivalents and cash generated from operations for the
next 12 months, our ability to grow our personalized products and
services as
a percentage of our total revenues, our operating expenses remaining a consistent percentage of our net 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, greeting and stationery
cards, 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 production 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 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.
Our operations and financial performance depend on general economic conditions. The U.S. economy is experiencing a slow economic
recovery from a deep recession and concerns about that recovery could further impact consumer sentiment and consumer discretionary
spending. We closely monitor these economic measures as their trends are indicators of the health of the overall economy and are some of the
key external factors that impact our business.
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