First, thanks to Deal Flow reader and indy blogger Mr. Wave Theory for the excellent analysis of DivX's proposed IPO. Perhaps he or another reader can weigh in on Internet photo service Shutterfly, which today priced it proposed IPO at $13 to $15. That price could value the company as high as $354 million, or 13.3 times trailing 12-month earnings. The company's revenues, earnings, and cash flow are highly seasonal. Shutterfly posted a profit last year, but all of the profit--and 49% of 2005 sales--were booked during the fourth quarter (people take a lot of photos around the holidays). Moreover, that holiday rush took a big bite out of Shutterfly's cash when the bills for photographic paper and other supplies came due in the first quarter. In the three months ended March 31, the company paid out $10.7 million to cover accounts payable and accrued liabilities, driving its cash balance down 33% from the previous quarter. Shutterfly's biggest risk is competition from big-box retailers like Wal-Mart and Target, which let customers order prints of digital photos on their web sites and in their stores. How Shutterfly will compete with those margin-crushers over the long run is an open question. I've used Shutterfly's service for several years and love it. As an investment, however, the company is a bit risky for my taste.
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