Winners and Losers of the Shutterfly/Lifetouch combination

The photo industry’s biggest merger in years has brought up rampant speculation among competitors, vendors gadflies about the Shutterfly acquisition of Lifetouch. Details of the combination are still coming out, but it’s clear there is a short-term positive reception. Shutterfly’s stock rose to more than $70 a share, after being mired in the mid-$50 range for months.

From a financial/stock analyst point of view, the Shutterfly/Lifetouch deal makes sense, as we wrote here last week. Despite the combined production capabilities, however, there are nagging problems inherent to Lifetouch’s core business.

“ term the issues plaguing school photography, primarily the consumers shift to mobile and away from prints continues. If this acquisition falls short of transformational and a change in the school picture model is not on the horizon the combining of these two powerhouses may do little to change the trend line,” says Mark Schoenrock, of Professional School, Sport & Special Event Consulting (PSPC), Eden Prairie, Minn. Schoenrock spent more than 25 years as part of the Lifetouch leadership team. “Short-term this move is critical to removing the burden of the ESOP’s repurchase obligations on the company and reducing its expenses. It should improve Lifetouch’s consumer product offerings, provide more opportunity to monetize their images and revive their spirit of innovation.”

Another side is, while both companies are photo printing industry giants, they are not in the position to take advantage of the digital viewing technologies consumers are embracing.

“So, why is Wall Street all wrong and is this a bad deal for our friends in Redwood City?” writes Hans Hartman of Suite 48a, organizer of the Visual1st conference. “In short: Lifetouch is an 81-year-old company with a business model that is fine-tuned for an era that preceded today’s mobile- and social network-dominated photo taking, engaging, sharing and printing trends. For Shutterfly, this means a step forward to the past, at a time that Shutterfly desperately needs to take steps forward to the future.”

Two points of contention linger, according to Hartman: Printing photos for memories is no longer a given and the continued disruption of the portrait business by the gig economy. Spending $825 million on digital alternatives may have better prepared Shutterfly for the long-term future.