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We recently downgraded our rating on Vistaprint N.V. (VPRT - Analyst Report) from Neutral to Underperform. The rating on this online supplier of graphic design services was downgraded on a host of factors including muted guidance for fiscal 2012 and 2013, execution risk for a set of initiatives and stagnation in customer growth.
In its recently concluded fourth quarter 2011, Vistaprint reported adjusted earnings of 43 cents per share handily beating the Zacks Consensus Estimate of 32 cents per share. The company registered a 27% year-over-year growth in revenues to reach $208.8 million on the back of favorable foreign currency translation. Although management expects to achieve $2 billion in revenues over the next five years and targets an EPS CAGR of at least 20.0%, we remain cautious on the stock on several challenges going forward.
To facilitate the above-said growth, Vistaprint undertook huge investment initiatives in marketing and manufacturing as well as enhancement in customer satisfaction. The move could prove accretive in the long term, but poses an execution risk in the near term. All the initiatives are in the initial phase of execution that makes the return on investment uncertain at the current level. Additionally, due to heavier up-front investments, Vistaprint expects its margin and earnings per share in fiscal 2012 and 2013 to decline significantly year over year.
In spite of enjoying a leading position in the industry, Vistaprint faces significant competition. Traditional graphic design & printing companies and other online suppliers target the same customers as Vistaprint.
Vistaprint witnesses a 13% year-over-year growth in new customers but the same remained flat sequentially. The stagnation in new customer growth remains a cause of concern for the company. Total orders also decelerated to 16% year over year with a higher conversion rate of 7.8%. Substantial exposure to international markets also makes the company vulnerable to currency fluctuation risks.
Agreement - Estimate Revisions
For the upcoming quarter, 3 out of 7 analysts decreased their estimates over the last 30 days based on the above fundamentals. For fiscal 2012, all 8 analysts slashed their estimates while none moved in the opposite direction.
Magnitude - Consensus Estimate Trend
During the last 30 days, estimates fell 22 cents and 98 cents for the upcoming quarter and fiscal 2012, respectively. The current Zacks Consensus Estimates for the first quarter and fiscal 2012 are pegged at 12 cents and $1.14 per share, reflecting a year-over-year decline of 48.21% and 37.43%, respectively.
Vistaprint currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating. Some of the peers of Vistaprint are TeleTech Holdings Inc. (TTEC - Snapshot Report), Sykes Enterprises Inc. (SYKE - Snapshot Report).