Jeffrey Housenbold, the chief executive officer of Shutterfly (SFLY), sat down recently for a meal at Il Fornaio, a popular Italian restaurant in Palo Alto. He says he watched as a diner at a nearby table pulled out a smartphone and began uploading pictures of his steaming plate of cioppino onto Instagram. After describing the scene, Housenbold says: “I don’t have photos of people’s dinner on my service. I have 16 billion memories.”
Housenbold uses anecdotes like this to help explain why Shutterfly isn’t insecure about its place in the world. The Redwood City (Calif.)-based company is making money by turning digital snapshots into tangible things: Sales of custom photo books, calendars, greeting cards, wedding invitations, and even wall decals totaled an estimated $600 million in 2012. Yet there’s a feeling that the company has been passed by. After all, investors value Shutterfly at $1 billion—the same price Facebook (FB) paid for Instagram, a startup with no revenue.
Founded in 1999, Shutterfly has been surrounded by naysayers for much of its existence. The company has faced off against 1,000 (yes, really) startups in the online photo market as well as giants such as Wal-Mart Stores (WMT), Walgreens (WAG), Hewlett-Packard (HPQ), Eastman Kodak, and Yahoo! (YHOO) Its odds of survival seemed low, but Shutterfly has chalked up 47 straight quarters of revenue growth. Sales, on Housenbold’s watch, have multiplied elevenfold. Having absorbed the customers from the defunct digital photo businesses of Kodak, Fujifilm, and Yahoo, Shutterfly is now home to 70 petabytes’ worth of cherished family pictures—making it the largest service of its kind.
Housenbold arrived from EBay (EBAY) in 2005 and took Shutterfly public a year later. Endowed with a photographic memory, the 43-year-old executive can recite the minutiae of Shutterfly’s financial performance over the past decade with ease. He’s also beyond what people would consider a photo buff. A onetime high-school and college yearbook photographer, he spent $2,000 a year on Shutterfly before taking over the company. He has 248,000 photos stored on his hard drive.
Most of Shutterfly’s customers aren’t so committed to photography. They are, in Housenbold’s words, amateur “chief memory officers.” Women account for 80 percent of Shutterfly’s business, and more than half of the company’s revenue comes around December as these CMOs turn photos into gifts. To secure its edge over rivals, Shutterfly has invested in technology, such as algorithms that will scan a photo album and arrange the pictures into a well-crafted book, as well as high-quality materials like double-thick paper. “It turns out that 25- to 50-year-old women really care about design and want to show off some flair,” Housenbold says.
Despite its solid financial performance, Shutterfly has a roller-coaster stock history, reflecting investors’ continuing concerns that it will be edged out by competitors. HP, owner of Snapfish, and American Greetings heavily discounted their prices in 2012, says Victor Anthony, a financial analyst with Topeka Capital Markets. “You have an industry under intense pricing pressure, and there’s always the concern going forward that companies like Facebook, Apple (AAPL), and Amazon (AMZN) will decide to enter this business,” he says. “The question is, will they build their own stores or try to buy Shutterfly?”
Housenbold counters that the company has a strategy in place to make more money outside the holiday rush. During slower times, Shutterfly has started using its digital presses to print custom brochures and mailings for AT&T (T), Dell (DELL), and other customers. It’s a $13 million-a-year business that Anthony expects could hit $100 million in two to three years. Shutterfly has also acquired companies such as Tiny Prints and Wedding Paper Divas to round out its portfolio of stationery, greeting cards, and invitations that can be sent throughout the year. As Housenbold says, “It’s all about the moments that matter.”