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Saturday, September 09, 2006

Weekend Edition: IPO Terms for Shutterfly IPO: Still Questionable, and Then Some

"Shutterfly IPO looked better after the last quarter, but why on earth did
Goldman Sachs bail out of the IPO as the lead underwriter?"

Shutterfly has shown its proposed IPO terms this morning, and the amount that is indicated is slightly less than the $92 million it listed on June 29 in its "up to $92 million" to be raised. If you used 5.8 million shares at the high-end of the $15.00 range, you would get a total of $87 million. It is one of the leading online photo service that lets consumers share, store, edit and print digital photos. The California-based company plans backed by Netscape founder Jim Clark plans to offer 5.8 million shares at a range of $13.00 to $15.00 per share.

The deal has now a proposed market cap for the company of about $390 million and will trade under the ticker "SFLY." J.P.Morgan is the lead underwriter and Piper Jaffray and Jefferies are set to co-manage the deal. What is interesting is that Goldman Sachs is no where to be seen, even though they were on an amended S-1 filing last month and on the June 29 original S-1 filing. That cannot be a coincidence, and this may raise a flag. There could have been some conflict of interest for the reason behind it, but that would be overly optimistic thinking.

Goldman Sachs is still listed as a 375 share owner of the company, but that is far too small for a "conflict" to keep them from participating as that is very far under 1% of the company and they could have forfeited the shares. Jim Clark and entities affiliated with him own 7.1+ million shares, which is listed as 40.3% of the company. There is also a significant number of preferred class shares that will convert subject to a $12.00 price and $25.0 million raised.

We now have the financial results for the year up to June 30, 2006 and that was not available as of June 29.

The company claims $19.4+ million in total liabilities (down from $27.1 million at the end of 2005), with $14.8 million of that being regular short-term obligations and normal costs. Its cash and equivalents were $23.9+ million and just over $5 million more in other current assets, but its cash and equivalents carried at the end of 2005 was listed as a much higher $39.153 million. It valued its plant and equipment at $22.5 million, which is almost $1.8 million higher than at the end of 2005. it also lists a deferred tax asset at $24.5 million, which is also up almost $1.9 million from the end of 2005.

The only good news here is that the company is still showing revenue growth. For 2005 we noted that the company posted a $28.9 million in net income, but $24 million of that was from a tax benefit and another $442,000 was from an accounting change. For the first half of 2006 the company stillhas a net loss, although while we said earlier "the only good news..." it does need to be offered in fairness that the company depends heavily on the last quarter for revenues and income like so many other retail-related plays. For the first 6-months of the year the company posted revenues of $36.5 million (up from $27.2 million the first half of 2005). Unfortunately its operating expenses and investments outpaced the revenue growth. It posted a net loss allocated to shareholders of -$3.658 million for the first half of 2006, compared toa first half loss of -$1.29 million in 2005.

It really appears as though any IPO player here is going to be banking on a solid end of the year. Its top-line growth is so far being offset by an increase in spending and there are some questionable thoughts with Goldman Sachs all of a sudden not appearing in the deal.

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