Shutterfly, Inc.

1
Shutterfly, Inc.

• Pete Cobos
• McIntire Investment Institute
• Monday, February 18, 2008

2
Company Overview

• Photo Prints
• Personalized Products
• Upload, Edit, Storage
• Founded 1999
• Redwood City, CA

• Share Price 16.63
• Market Cap 412M
• Forward P/E 28.2x
• EBITDA Multiple 9.9x
• Beta 1.1

2 SFLY Cobos 2.18.08
3
52-Week Performance
Range 14.62 37.00
3 SFLY Cobos 2.18.08
4
Investment Fundamental

• Days Sales Outstanding (DSO)
• Average Days a company takes to collect on its
  accounts receivable.
• Lower is better.

4 SFLY Cobos 2.18.08
5
Investment Fundamental

• Days Sales of Inventory (DSI)
• Average Days a company takes to turn its
  inventory.
• Lower is better.

5 SFLY Cobos 2.18.08
6
SFLY Thesis Points

• Growth opportunities in photo sharing and
  printing
• High customer loyalty
• Strong strategic partnerships
• Experienced management team

6 SFLY Cobos 2.18.08
7
SFLY Thesis Points

• Growth opportunities in photo sharing and
  printing
• High customer loyalty
• Strong strategic partnerships
• Experienced management team

7 SFLY Cobos 2.18.08
8
Opportunities for Growth

• Enormous Untapped Market
• 58 million U.S. households with digital cameras
  and internet access
• 6 have purchased photo-based merchandise over
  the internet.
• Increased public desire for personalization and
  social networking
• Facebook, MySpace

8 SFLY Cobos 2.18.08
9
Opportunities for Growth

• Volume growing, storage costs shrinking
• Vertical IntegrationComplete supply chain
  control
• Higher quality goods
• Quicker innovation and adjustment
• Greater operational efficiency
• Viral growth
• 50 sales growth last 2 years, low marketing
  expense relative to competitors

9 SFLY Cobos 2.18.08
10
SFLY Thesis Points

• Growth opportunities in photo sharing and
  printing
• High customer loyalty
• Strong strategic partnerships
• Experienced management team

10 SFLY Cobos 2.18.08
11
Customer Loyalty

• Last six quarters
• 77 of SFLY revenue from repeat customers
• Viral, word-of-mouth growth
• Friend recommendations versus advertising
• Truly differentiated products/services
• Copernican Award Best Customer Experience
• Field Test Winner, Hard Bound Publishing Money
  Magazine

11 SFLY Cobos 2.18.08
12
Customer Growth
12 SFLY Cobos 2.18.08
13
SFLY Thesis Points

• Growth opportunities in photo sharing and
  printing
• High customer loyalty
• Strong strategic partnerships
• Experienced management team

13 SFLY Cobos 2.18.08
14
Strategic Partnerships

• Target Order prints at shutterfly.com and pick
  them up at Target
• Nickelodeon Create custom Nickelodeon
  storybooks with childrens photos.
• Martha Stewart Create cookbooks with personal
  recipes and photos
• Sesame Street Create custom storybooks with
  Sesame Street characters.

14 SFLY Cobos 2.18.08
15
SFLY Thesis Points

• Growth opportunities in photo sharing and
  printing
• High customer loyalty
• Strong strategic partnerships
• Experienced management team

15 SFLY Cobos 2.18.08
16
Management

• Focused team that doesn't have to worry about
  other product lines (H-P, Kodak)
• Experience in managing brands and growing
  companies
• CEO Jeffrey Housenbold
• EY Entrepreneur of the Year, 2006
• CMO Kathryn Olson
• Experience at Quaker Oats, Snapple, Gatorade

16 SFLY Cobos 2.18.08
17
Risks

• Strong competition with resources to innovate
• Hewlett-Packards Snapfish
• Kodaks Easyshare
• Early stages of growth, tough to estimate future
  demand, customer sentiment
• Unorthodox marketing plan
• Is word-of-mouth growth sustainable?
• Increased marketing costs in the future?

17 SFLY Cobos 2.18.08
18
Value-Added Research

• Three Questions
• What drives the success and growth of internet
  companies, specifically SFLY?
• Is word-of-mouth viral growth sustainable?
• What first-hand knowledge can be gained about
  Shutterflys products and performance versus
  competitors?

18 SFLY Cobos 2.18.08
19
Value-Added Research

• Prof. William Kehoe, Marketing
• Key drivers of success service, anticipation of
  trends
• Friend recommendations typically carry much more
  weight than regular internet advertising
  practices.

19 SFLY Cobos 2.18.08
20
Value-Added Research

• Bryan Antler, CEO, FriendTones
• Management team, product and timing are most
  responsible for success
• Viral growth sustainable when tapped into the
  right social networks
• Customer loyalty is built through great products
  and the network effect.

20 SFLY Cobos 2.18.08
21
Value-Added Research

• Independent Research
• Matt OKeefe, InfoTrends
• Target PhotoCenters
• SFLY Products are more creative and higher
  quality
• Increasing popularity of online submission
• Personal Use

21 SFLY Cobos 2.18.08
22
Measuring Success

• Most useful metrics
• Sales
• Number of Customers
• Average orders per customer
• Revenue mix
• Revenue source

22 SFLY Cobos 2.18.08
23
(No Transcript)