Shutterfly 2015 Annual Report Download - page 18

Competitive pricing pressures, particularly with respect to pricing and shipping, may harm our business and
results of operations.
Demand for our products and services is sensitive to price, especially in times of slow or uncertain economic
growth and consumer conservatism. Many external factors, including our production and personnel costs,
consumer sentiment and our competitors’ pricing and marketing strategies, can significantly impact our pricing
strategies. If we fail to meet our customers’ price expectations, we could lose customers, which would harm our
business and results of operations.
Changes in our pricing strategies have had, and may continue to have, a significant impact on our net
revenues and net income. From time to time, we have made changes to our pricing structure in order to remain
competitive. Most of our other products, including photo books, calendars, cards and stationery and other photo
merchandise are also offered by our competitors. Many of our competitors discount those products at significant
levels and as a result, we may be compelled to change our discounting strategy, which could impact our
acquisition of new customers, average order value, net revenues, gross margin, and adjusted EBITDA and net
income profitability measures. We experienced a greater level of discounting in 2015 than in past years. If in the
future, due to competitor discounting or other marketing strategies, we significantly reduce our prices on our
products without a corresponding increase in volume, it would negatively impact our net revenues and could
adversely affect our gross margins and overall profitability.
We generate a significant portion of our net revenues from the fees we collect from shipping our products.
For example, shipping revenue for the Shutterfly brand website represented approximately 20% of our net
revenues in 2015 and 16% of our net revenues in 2014 and 2013. We offer discounted or free shipping, with a
minimum purchase requirement, during promotional periods to attract and retain customers. If free shipping
offers extend beyond a limited number of occasions, are not based upon a minimum purchase requirement or
become commonplace, our net revenues and results of operations would be negatively impacted. In addition, we
occasionally offer free or discounted products and services to attract and retain customers. In the future, if we
increase these offers to respond to actions taken by our competitors, our results of operations may be harmed.
We face intense competition from a range of competitors and may be unsuccessful in competing against
current and future competitors.
The digital photography products and services industry is intensely competitive, and we expect competition
to increase in the future as current competitors improve their offerings, including developing, acquiring and
expanding mobile and cloud-based offerings, and as new participants enter the market or as industry
consolidation further develops. Competition may result in pricing pressures, reduced profit margins or loss of
market share, any of which could substantially harm our business and results of operations. We face intense
competition from a wide range of companies, including the following:
• Online digital photography services companies such as Snapfish, Vistaprint, and many others;
• Social media companies that host and enable mobile access to and posting of images such
as Facebook, Instagram, Twitter, Pinterest, Snapchat and Google+;
• Photo hosting websites that allow users to upload and share images at no cost such as Apple iCloud,
Google Photos, and Flickr;
• “Big Box” retailers such as Wal-Mart, Costco, Sam’s Club, Target, and others that offer low cost
digital photography products and services. In addition to providing low-cost competitive product
offerings on their respective websites, these competitors provide in-store fulfillment and self-
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