The following webcasts contain forward-looking statements relating to future events or future financial performance of the Company that involve risks and uncertainties. Actual results may differ materially from those anticipated in these statements based on a number of factors, including those identified in the company's annual report on Form 10-K filed with the SEC on February 7, 2011. These presentations may also contain references to non-GAAP financial measures. A presentation of and reconciliation to the most directly comparable GAAP financial measure, where such can be done without unreasonable effort, can be found on our Web site at http://ir.shutterfly.com. The forward looking statements are made as of the date of broadcast and the Company undertakes no obligation to update such forward-looking statements.
Shutterfly, Inc. is a leading Internet-based social expression and personal publishing service that enables consumers to share, print and preserve their memories by leveraging our technology-based platform and manufacturing processes.
Today, our primary focus is on helping consumers manage their memories through the powerful medium of photos. We provide a full range of products and services that make it easy, convenient and fun for consumers to upload, edit, enhance, organize, find, share, create, print and preserve their digital photos 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 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.
We believe that people have an intrinsic desire for social expression, as they wish to capture and share their experiences and pass them on to future generations. Since the beginning of humankind, people have shared detailed stories of their lives through visual expression. Today, with the evolution of digital cameras and technology, millions of people around the world are capturing their memories and communicating in deeper, more meaningful ways.
Creating value for our customers is the basis for our success. We offer customers easy, convenient and fun ways to:
share and preserve memories for family, friends and themselves;
organize all of their photos in a single, safe and easily accessible location;
maintain emotional connections to friends and family, despite being time-constrained, through thoughtful and personal photo-based communications and gifts; and
achieve satisfaction and self-expression through creativity and telling stories with photos.
Shutterfly, Inc. believes that its market opportunity is large and in its early stages. Accordingly to recent estimate by IDC, growth in digital camera penetration and broadband penetration is now above 50% of US households, and expected to reach the 80% levels in next 5 years. Additionally, Infotrends estimates that only 6% of the 58 million US households with both digital cameras and Internet access have actually purchased photo-based merchandise, such as photo books, folded greeting cards, calendars, and mugs.
InfoTrends' most current estimates (November 2005) indicate that Shutterfly, Inc.'s market share is 31%, Kodak's is 32% and Snapfish's is approximately 17%. Based on digital camera usage, the overall market is expected to grow significantly over the next few years. IDC forecasts that the Internet-to-mail segment will reach $1.9 billion in revenues by 2009, as more and more consumers are discovering online photo sharing and print services.
The Internet-to-mail segment is the fastest growing segment of the overall digital print market. IDC forecasts that the Internet-to-mail segment will reach $1.9 billion in revenues by 2009, as more and more consumers are discovering online photo sharing and print services.
Shutterfly, Inc. continues to enjoy rapid growth, due to several fundamentals:
The social expression / personal publishing market is in very early stages, and we believe it will grow rapidly as innovation and adoption of digital cameras and more broadband Internet access into US household increases. Shuttefly believes it can continue to grow in this market due to:
Viral customer adoption
Partnerships, to drive awareness and more adoption
Innovation in social expression / personal publishing, with products / services to give consumers power to do things they've never done before (e.g., photo books, cards, calendars, etc.)...
Shutterfly, Inc. has a number of direct and indirect competitors. Direct competitors include Kodak EasyShare Gallery and HP's Snapfish. Indirect competitors include online portals, some of the major retailers, and photo-related start-ups.
Shutterfly, Inc. is 100% focused on developing a premium lifestyle brand. That's because premium brands confer high customer loyalty, viral word-of-mouth growth, high customer retention and repeat orders. In addition, Shutterfly, Inc. continues to innovate – introducing new products and services to consumers, driving process innovation to improve product quality and cost.
Shutterfly, Inc. is focused on developing a premium brand, targeting loyal customers who value quality more than price. Consequently we enjoy a price umbrella and compete on value, not on price. And because Shutterfly is vertically integrated, we can be very efficient regarding production costs.
Additionally, Shutterfly, Inc. continues to expand and innovate with its product offerings, and more and more customers are purchasing personalized products such as greeting cards, photo books, calendars and other photo-based merchandise. Consequently, revenues from prints continue to decline as a proportion of total revenues; for example, in 2006 revenues from print products were less than half of overall revenues, a trend which continues into 2007.
Storage costs continue to decrease, even while storage requirements are growing. In addition, Shutterfly has a low-cost, multi-tier architecture, to ensure safe storage of customer images at very low cost.
In Q2 2007, Shutterfly, Inc. announced a strategic partnership with Target stores. With this relationship, Target will offer Shutterfly, Inc. photo services through www.targetphoto.shutterfly.com and www.target.com/photo. Target guests will be able to upload and organize their photos online and access Shutterfly, Inc.'s easy-to-use services to store, share and print their digital photos, and create memorable gifts.
Additionally, Shutterfly, Inc. customers will be able to order prints at www.shutterfly.com and order them for pick up (in as little as one hour) at their Target store of choice. Over time, both companies' customers will have the following service options:
Order prints on-line and pick them up in local Target stores within an hour
Order Shutterfly, Inc. products and receive them at home via mail delivery
Purchase Shutterfly, Inc. ship-to-home products at select Target stores
Shutterfly, Inc. chose to work with Target because of Target's attractive customer demographics, commitment and dedication to high quality customer service, complementarity of Target's product and services offerings, and Target's approach to both brand and retailing.
Most visitors come directly to Shutterfly, Inc., powerful proof of the viral word-of-mouth evangelizing from our customer base! However, Shutterfly, Inc. drives traffic through other channels, including PR, online and offline advertising, packaging inserts, direct mail catalogues and strategic partnerships.
Partners are an important part of our customer acquisition strategy. Shutterfly, Inc. acquires customers, using a mix of channels / methods – via our enthusiastic customer referrals / viral adoption, online and print advertising, a print catalog, paid search, packaging inserts and key partnerships. We evaluate partners for compatibility on: their target customer demographics, brand affinity / complementarity, and unique value-add to Shutterfly, Inc.
Shutterfly, Inc. believes that controlling our supply chain drives higher quality, more rapid innovation and greater efficiencies. For example, we are able to maintain our delivery times, even during the peak fourth quarter, because we control our own production. However, we continue to evaluate outsource manufacturing alternatives, to ensure that we are delivering the highest quality at the lowest possible cost.
In addition to number of customers, number of orders, average order value and average orders per customer per year, we look at a number of internal cost and quality metrics. Examples include: press waste, machine uptimes, number of customer complaints, customer service response times and issue closure rates, number and aging of software / site bugs...
Sharing memories is a global phenomenon. Shutterfly, Inc is looking closely at countries with high digital camera penetration and broadband connectivity, and believe that international expansion will be a part of our future.
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