Shutterfly buys Groove Book. Who wins? “Shark Tank”
All the ballyhoo over the purchase of “Shark Tank” darling Groove Book by Shutterfly created a lot of excitement. The $14.5 million purchase is “the biggest exit in ‘Shark Tank’ history and the first purchase of a company featured on the show by a publicly traded firm,” according to CNBC, which lavished praise on the entire deal. Extended interviews with Shutterfly CEO Jeff Housenbold and “Shark Tank” stars played up the hot opportunity presented to get in front of the cameras.
But… really? Let’s disregard the download numbers. Yes, 1 million downloads is impressive for any app, but for a printing app like Groove Book, what matters is orders, or in this case, subscribers willing to have their foodie shots bound into a $2.99 snapshot-size book. The “Shark Tank” exposure boosted subscribers to nearly half a million, according to Marketwatch’s Jennifer Booton. That would turn out to be $18 million in annual revenues (assuming all 500,000 subscribers stayed a whole year) with an annual profit of $350,000 (assuming 70-cent margin on every $2.99 book), according to the article. [NOTE: Earlier versions of this post erroneously quoted MarketWatch saying the margin was 70 percent, not 70 cents]
“People are just devouring this product,” said Kevin O’Leary, host of ‘Shark Tank’. “There’s no way this company would stand alone. It’s got to go with Shutterfly. It’s just too big.”
O’Leary may be a financial whiz, but he doesn’t know jack about photo books. Groove Book could easily have outsourced its production to one of the many fine wholesalers, so production wasn’t a constraint. If anything, Groove Book’s limited size, shape, design and fixed pricing model meant this product is eminently scaleable.
Most photo-printing companies being sold are being evaluated at 1X revenues, so the price seems about right. According to Janney Capital Markets (quoted in Marketwatch here) “said the revenue run rate for GrooveBook could be approaching $15 million to $20 million.”
With this deal, Shutterfly gets to burnish its brand and bask in the reflected glow of a hit TV show. Also, after the well-publicized failure to take SFLY private last month, this move shows Shutterfly has some game and is willing to grow its app business. And, Groove Book gets a home in Redwood City.
Further, there’s little down-side risk for Shutterfly, which is nearly a billion-dollar company. There’s no question Shutterfly itself could have on its own developed a subscription photo book product similar to Groove Book; they have the programming prowess and the manufacturing capability. What they don’t have, as some big companies have found, is a way to grow niche brands quickly. With the millions of dollars in free advertising and PR from this acquisition, this kick-starts this for Shutterfly. Housenbold himself told CNBC:
“Every time you’re on ‘Shark Tank’ it’s the equivalent of getting 10 to 15 million dollars of advertising. As you think about plugging in that mobile, social component into our platform, it made sense to do an acquisition at this early stage versus trying to compete.”
Check out the list of “success stories” on the “Shark Tank” page. None of these are household names; some are fine products, and could be mainstays in Brookstone or catalogs, but nothing earth-shaking. In fact, consider this: After five years, it’s taken the Sharks this long to pick a big winner? Sure, with the snarky dynamic and the vicarious delight in watching entrepreneurs get their hopes deferred or endorsed, “Shark Tank” makes for good TV. But is it good business? With this long of a drought, it was coming into question. Like “American Idol,” a show like “Shark Tank” thrives on a constant stream of dreamers and doers, looking for that big break. What they have missed is their Kelly Clarkson, the household-name winner. Groove Book is it.
The big winner here, then, is not Groove Book or even Shutterfly. It’s “Shark Tank” itself.
Originally published at www.linkedin.com on November 20, 2014.