Shutterfly IPO May Help It Compete

Shutterfly Inc.’s pending initial public stock offering provides the company with an opportunity to address some of the challenges it faces to remain one of the top online photography websites.

Those challenges include increasing competition and customers’ growing preference for a service that Shutterfly doesn’t provide: picking up pictures they ordered online at their local retail store, which is faster than waiting for prints in the mail.

The Redwood City, Calif.-based company filed June 29 for an IPO to raise as much as $92 million. In its filing with the Securities and Exchange Commission, Shutterfly outlined a growth strategy based that included expanding services, adding new customers and expanding internationally.

The company said it might use proceeds from the IPO for manufacturing and website infrastructure equipment and manufacturing facilities. It may also use net proceeds for acquisitions, the filing said.

Judith McGarry of Shutterfly’s investor relations department declined to comment, citing the quiet period associated with the company’s IPO.

Shutterfly customers order printed versions of their digital pictures through its website, Shutterfly.com. The company mails prints directly, which can take a couple of days.

Some competitors have forged relationships with retailers that print the digital pictures for customers within hours. For example, Snapfish, a service of Hewlett-Packard Co., has such relationships with Walgreen Co. and Costco Wholesale Corp.

Online photo companies have a high level of customer loyalty, said Harry Wang, a research analyst at Parks Associates. After a customer accumulates a lot of pictures on an online photography site, it is hard to switch to another online site, he said.

Wang expects the segment of the digital imaging industry that lets customers pick up pictures at retail stores to increase to $11.5 billion in sales by 2010 from $5.4 billion this year, and the segment that mails prints to customers to decline to $1.2 billion in sales from $1.4 billion.