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VistaPrint Chases Away the Gloom

Source:BusinessWeek.com Author:Ben Steverman Date:03/25/14 Click:

Even a slowing economy and a gloomy stock market can't keep a fast-growing company down.

Shares of online printing company VistaPrint (VPRT) had suffered since the new year, losing a third of their value at one point as fears of recession spread. But VistaPrint bounced back almost 12% on Jan. 25 after the company reported strong profits.

Revenues jumped 64% to $105 million in VistaPrint's second quarter of its 2008 fiscal year. The firm earned 24 cents per share, up from 18 cents a year ago.

The big profits "attest to the strength of the [VistaPrint] model even in a slowing economy," said Jefferies (JEF) analyst Youssef Squali.

Each day, VistaPrint takes thousands of printing orders over its web site, which allows clients to design their own business cards, brochures and other products. Using sophisticated software, VistaPrint combines similar orders and prints them on high-quality printing presses. The idea is to create high-quality printed material at inexpensive prices. Key clients are small businesses, though consumers also use the service.

Last quarter, VistaPrint signed up more than 1.1 million new customers, a record, while 63% of orders came from repeat customers.

Investments in VistaPrint's European business obviously have helped, Needham analyst Mark May notes. International revenue grew 91% from a year ago, while U.S. revenue still rose 51%.

Executives also touted a partnership with Intuit (INTU), which will tie VistaPrint's service into Intuit's QuickBooks software, which is widely used by small businesses.

"As always, VistaPrint remains focused on the long term and we look forward to continuing growth, increasing our competitive advantage and strong profitability," said president and chief executive Robert Keane, in a statement.

The company expects revenue to grow quickly in 2008, outdoing most analysts estimates. However, VistaPrint didn't boost its earnings forecasts. That's part of a strategy to re-invest most profits back into the company to fuel more growth. The company has invested in new printing facilities to handle the increase in orders, better design software on the site and boost its marketing budget to publicize the service to small businesses.

Squali at Jefferies says this strategy has worked so far. "Management's track record over the last several quarters shows solid execution and the ability to deliver robust revenue growth," Squali wrote. "As such, we believe that its current strategy to reinvest in growth is prudent and should increase shareholder value in the long term."

VistaPrint shares rose $3.83 on Jan. 25 to end the day at $36.83, an 11.61% jump. In response to the strong quarterly results, many analysts raised price targets. Needham's May has a 12-month price target of $50, "which seems reasonable — if not conservative," he wrote.

Brad Manuilow of American Technology Research has a lower price target of $37. "We believe caution is warranted given the macro environment," he wrote.

Indeed, worries about the economy still hang over VistaPrint, and much of the rest of the stock market, like a black cloud. Because of its strong growth prospects, VistaPrint already trades at a high price-to-earnings ratio of almost 29 times Manuilow's fiscal 2008 estimates.

That high valuation raises expectations for VistaPrint, increasing the risk that even a slight dip in growth this year could take a big bite out of its share price.

Steverman is a reporter for BusinessWeek's Investing channel.

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