October 30, 2014 Vistaprint N.V. Current Recommendation SUMMARY DATA NEUTRAL Prior Recommendation Outperform Date of Last Change 08/07/2013 Current Price (10/29/14) $55.06 Target Price $58.00 52-Week High $57.66 52-Week Low $37.15 One-Year Return (%) 3.24 Beta 1.18 Average Daily Volume (sh) 540,312 Shares Outstanding (mil) 32 Market Capitalization ($mil) $1,785 Short Interest Ratio (days) 28.86 Institutional Ownership (%) 84 Insider Ownership (%) 12 Annual Cash Dividend $0.00 Dividend Yield (%) 0.00 5-Yr. Historical Growth Rates Sales (%) 19.4 Earnings Per Share (%) -2.8 Dividend (%) N/A using TTM EPS 17.0 using 2015 Estimate 17.2 using 2016 Estimate 15.1 Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page (VPRT-NASDAQ) SUMMARY Vistaprint reported stellar first-quarter fiscal 2015 results with healthy year-over-year increases in both adjusted earnings and revenues that comfortably beat the respective Zacks Consensus Estimates. Vistaprint is currently shifting its value proposition away from deep discounts and free-offer direct marketing efforts to tap the large market opportunity beyond the traditional base of highly price-sensitive customers. The company is currently passing through a transitional phase as it attempts to change its operating model and is expected to improve in the long run. However, stiff competition and adverse foreign currency effects could peg back its growth momentum to some extent. Nevertheless, we maintain our long-term Neutral recommendation on the stock. Risk Level * Above Avg., Type of Stock Mid-Growth Industry Outsourcing Zacks Industry Rank * 101 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Sep) (Dec) (Mar) (Jun) (Jun) 2013 251 A 348 A 288 A 280 A 1,167 A 2014 275 A 371 A 286 A 338 A 1,270 A 2015 334 A 437 E 352 E 365 E 1,488 E 2016 1,619 E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Sep) (Dec) (Mar) (Jun) (Jun) 2013 $0.01 A $0.66 A $0.48 A $0.41 A $1.56 A 2014 $0.32 A $1.50 A $0.24 A $0.75 A $2.81 A 2015 $0.75 A $1.62 E $0.37 E $0.47 E $3.21 E 2016 $3.65 E Projected EPS Growth - Next 5 Years % 10 2014 Zacks Investment Research, All Rights reserved. www.zacks.com 10 S. Riverside Plaza, Chicago IL 60606
OVERVIEW Vistaprint N.V. is an online supplier of high-quality graphic design services and customized printed products to small businesses and consumers. The company provides services to more than 8 million small businesses and consumers per year. Vistaprint offers a wide range of products including business cards, brochures and websites to invitations, thank you notes, calendars, address labels, note pads, and signage, among others. With the use of proprietary web-based design software and advanced computer integrated printing facilities; the company has a competitive advantage over traditional graphic design and printing methods. Vistaprint was incorporated under the laws of the Netherlands on June 5, 2009, as a wholly-owned subsidiary of Vistaprint Limited. As a result of the change of domicile, the common shareholders of Vistaprint Limited became ordinary shareholders of Vistaprint, which thereby became the publicly traded parent company of Vistaprint Limited. The latter was the immediate predecessor corporation to Vistaprint, and was incorporated under the laws of Bermuda in April 2002. Vistaprint Limited held its initial public offering (IPO) in September 2005, selling 5.5 million common shares at $12.00 per share. Net proceeds to the company after underwriting discounts were $61.4 million. Upon closure of the IPO, the company s convertible preferred shares converted to an aggregate of approximately 22.7 million common shares. Vistaprint operates manufacturing facilities in Windsor, Canada and Venlo in the Netherlands. Additionally, the company s customer support operation, sales and design center is located in Montego Bay, Jamaica. The company s U.S. operations are headquartered in Lexington, Massachusetts, and its European Marketing office is located in Barcelona, Spain. The company s systems infrastructure, web, and database servers are hosted in Bermuda. REASONS TO BUY Vistaprint is currently shifting its value proposition away from deep discounts and free-offer direct marketing efforts to tap the large market opportunity beyond the traditional base of highly pricesensitive customers. The company is making good progress with investments in new markets and the business strategy is now focused on higher quality products and delivery, increased customer service and more transparent pricing which is designed to promote long-term customer relationships. In addition, Vistaprint has been acquiring firms with complementary product offerings and expects to ramp up its revenues with operating synergies through economies of scale and technological collaboration to serve a wide spectrum of customers across the globe. All these augur well for the long-term growth of the company. The scale of Vistaprint s operation gives small business customers access to quality products and printing services that would otherwise have been out of their reach. The company s product line has expanded to include a wide variety of offerings for its customers marketing needs. Many of the company s competitive advantages stem from its advanced use of technology. Due to the high volume of orders placed through its systems each day, Vistaprint is able to execute multiple orders in one print run. In this manner, the company is able to use high-end printing presses that normally would be economically unfeasible for small batch printing jobs. The company is also focusing on digital marketing services which was launched in April 2008 and is comprised of websites, email marketing, online search marketing and social media marketing. Vistaprint s business is scalable and its web presence and online tools for customer use are well established. While additional demand would result in various capital investments such as additional printing presses, these fixed costs would be spread over a wider revenue base. The company s solid Equity Research VPRT Page 2
operational position is also reflected in its history of strong fundamentals, which we expect to continue going forward. The company has been making efforts to stabilize the business conditions in Europe through better pricing, advertising and product quality. Vistaprint expects capital expenditures in the range of $80 million to $100 million in fiscal 2015, which will be primarily utilized to support the growth of business. These initiatives bode well for its long-term growth prospects. REASONS TO SELL Despite enjoying a leading position in the industry, Vistaprint faces significant competition from traditional graphic design and printing companies and other online suppliers. Moreover, increasingly advanced desktop publishing software and more capable desktop printers offer small businesses another cost-effective solution for their marketing needs. While these sources cannot meet the breadth of product offerings provided by Vistaprint, they can handle the day-to-day marketing needs of small business customers. This could harm the top-line growth of the company. Vistaprint is currently passing through a transition as it attempts to change its operating model. Gross margin in the reported quarter fell to 61.0% from 65.2% in the year-ago period. The year-overyear reduction in gross margin was driven by the recent acquisitions of People & Print Group and Pixartprinting, which have different business models with a relatively lower gross margin than Vistaprint-branded business. The company also expects only a modest revenue growth in fiscal 2015 and is likely to face continued headwinds in its core markets. The sluggish business environment in Europe was a major cause of concern for the company. Headwinds in currency translation could add to the woes as Vistaprint generates almost half of its revenues outside the U.S. The strategic repositioning of the Vistaprint brand also entails a huge risk. All these are likely to undermine its growth potential to some extent. RECENT NEWS Vistaprint Beats Q1 Earnings on Operational Excellence September 30, 2014 Vistaprint reported solid first-quarter fiscal 2015 results as revenues and adjusted earnings improved year over year due to the successful implementation of major pricing and marketing changes. GAAP net income for the reported quarter improved to $23.7 million from $0.4 million in the year-earlier quarter, primarily due to currency translation effects. On a per share basis, earnings for first-quarter fiscal 2015 surged phenomenally to $0.71 from $0.01 in the year-ago quarter. Excluding one-time items, adjusted earnings for the reported quarter were $0.75 per share the Zacks Consensus Estimate of $0.45. way above Quarter Details Total revenue in first-quarter fiscal 2015 surged 21% year over year to $333.9 million. The year-over-year increase in revenues was primarily attributable to tailwinds in leading markets due to changes in pricing and marketing practices along with healthy inorganic growth. Geographically, revenues were up 46% in Europe to $138.4 million, up 14% in Asia Pacific to $17.8 million and up 8% in North America to $177.7 million. Vistaprint is shifting its value proposition away from deep discounts and free-offer direct marketing efforts to tap the large market opportunity beyond the traditional base of highly price-sensitive customers. Quarterly revenues also exceeded the Zacks Consensus Estimate of $333 million. Equity Research VPRT Page 3
Gross margin in the reported quarter fell to 61.0% from 65.2% in the year-ago period. The year-over-year reduction in gross margin was driven by the recent acquisitions of People & Print Group and Pixartprinting, which have different business models with relatively lower gross margin than Vistaprintbranded business. Operating income more than doubled to $16.9 million from $8.4 million in the prior-year period. The yearover-year increase in operating income was largely on the back of higher revenues due to better customer service, improved product substrate quality, more reliable shipping methods, assistance for graphic design creation, new options for premium finishes and more stock keeping unit (SKU) choices. Management remains confident of healthy returns in the long run as it hopes to retain customer loyalty with focused services that translate into renewed organic growth. Balance Sheet & Cash Flow The company exited the quarter with $60.9 million in cash and cash equivalents, and long-term debt of $433.5 million. At quarter end, the company had $268.1 million of borrowing capacity available under its credit facility. The company generated $52.6 million of cash from operating activities during the reported quarter compared to $0.1 million of cash utilization in first-quarter fiscal 2014. Free cash flow for the quarter was $32.3 million, while capital expenditures aggregated $16.7 million. Outlook For fiscal 2015, the company provided an unchanged operational outlook. However, the company revised its revenue guidance to better reflect the currency movements and GAAP EPS guidance to manifest a few non-operational impacts. Vistaprint is focused on leveraging its investments for a strategic repositioning of its brand and expects modest revenue growth during the transitional phase in fiscal 2015. The company also expects to benefit from the recent acquisitions, expansion in new geographic areas and customer additions. At the same time, Vistaprint expects to further improve on its margins through a continued focus on improving its productivity and efficiency levels. Although we expect the company to face short-term headwinds, it is likely to deliver solid results in the future on the back of these initiatives. Revenues for fiscal 2015 are currently expected in the range of $1,430 million to $1,500 million, slightly down from the earlier range of $1,470 million to $1,540 million. Fiscal 2015 GAAP earnings are presently anticipated within $2.24 $2.74 per share, up from $2.15 $2.65 per share, while adjusted earnings guidance is maintained in the range of $3.46 $3.96 per share. Capital expenditures are likely to range within $80 million and $100 million. Equity Research VPRT Page 4
VALUATION At its current price, Vistaprint s trailing 12-month earnings multiple is 17.0x compared with the 17.8x average for the peer group and 18.2x for the S&P 500. Over the last five years, Vistaprint s shares have traded in the range of 15.8x to 50.3x trailing 12-month earnings. The stock is also currently trading at a premium to the forward earnings estimates. We maintain our long term Neutral recommendation on the stock as we anticipate it to perform in-line with the broader market. Our $58.00 target price, 18.1x 2015 EPS, reflects this view. Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low Vistaprint N.V. (VPRT) 17.2 15.1 17.1 12.6 17.0 50.3 15.8 Industry Average 17.9 16.7 13.8 12.7 17.8 36.8 13.3 S&P 500 16.9 15.9 10.7 15.2 18.2 27.7 12.0 Sykes Enterprises Inc. (SYKE) 15.6 13.3 10.0 8.7 16.5 18.6 9.5 Genpact Limited (G) 18.1 15.7 12.6 12.1 17.1 27.7 16.4 TeleTech Holdings Inc. (TTEC) 15.7 13.8 11.0 9.7 15.8 22.1 11.1 Hudson Global, Inc. (HSON) 66.3 11.4 TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Vistaprint N.V. (VPRT) 7.6 9.2 2.6 28.1 1.8 0.0 16.7 Industry Average 3.5 3.5 3.5 16.5-0.4 1.2 7.9 S&P 500 4.6 9.8 3.2 23.3 0.0 Equity Research VPRT Page 5
Earnings Surprise and Estimate Revision History Equity Research VPRT Page 6
DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of VPRT. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1127 companies covered: Outperform - 15.8%, Neutral - 78.2%, Underperform 5.9%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Analyst: Supriyo Bose Lead Analyst: Supriyo Bose QCA: Supriyo Bose Reasons for Update: 1Q15 Earnings Update Equity Research VPRT Page 7