VistaPrint: The #1 Solution for Small Business
Posted on: August 7, 2008 - Email Article - Printable Version
VistaPrint [VPRT: 60.87, -1.08 (-1.74%)] is the leading online supplier of graphic design services 
and customized print products for small businesses and consumers worldwide. Basically, this company makes business cards, brochures, letterheads etc for small businesses, by providing them a one stop shop to meet all their marketing needs and the touch needed for any small business to look like a big business. Normally small businesses have trouble obtaining the resources necessary at a reasonable cost to operate as efficiently as most big business, but VPRT helps close this gap by conducting business with a vertical integration model that allows them to be in control from the beginning to the end of the production process, which leads to the best prices for the consumer. The company started in 2001 and went public in 2005 and since its IPO has grown EPS by over 35% per year. In their latest earnings call they guided for an increase in net income of 27-37%, showing that this is still a growing business that is expanding both here in the US and internationally, while diversifying their offerings. Given that their strongest half of the year is coming up there are many reasons to like this company. My top 3 reasons are as follows:
- Superior Technology
- Strong Market and Consumer Base
- International & Product Growth
Superior Technology
The VistaBridge technology is a one of a kind technology, which gives VPRT its market niche and strong market share. The basic tenet of this technology is to print high quality designs at the lowest cost and quicker than all other competitors by calculating the optimal allocation of print orders at any given time. When an order is placed, the technology automatically aggregates orders with similar production characteristics (type of product, delivery date) into a single document image that can be done in a single press run, allowing delivery of product in up to 3 days, without sacrificing quality. The company notes in their annual report as an example, “up to 143 separate customer orders can be simultaneously printed as a single aggregated print file”, as opposed to processing products order by order like many of their competitors.
Their website also allows customers to create designs from over 70,000 high quality stock images, thousands of layouts and templates as well as dozens of color schemes. Users can also upload their own photos and designs to be used on all products, such as t-shirts. The website also offers design specialists to help small business with generating ideas at a fraction of the cost of their competitors. Couple this with the fact that they currently hold 16 patents and have applications for 40 more pending in the US, the company’s technology is second to none in a very competitive industry.
Strong Market & Consumer Base
The market that VPRT operates in is very large and diverse. It is estimated that there are over 20 million small businesses in the United States alone and that about 90% of new businesses are small business. This creates a very large opportunity for VPRT to further penetrate this ever growing market. Their strong consumer base is what will allow them to grow as more small businesses emerge. They currently have over 10 million customers in over 120 countries and feel as though these customers help bring in tons of new business every year through referrals and word of mouth marketing. While this part of the business is slowing a little bit there is no need to worry because over 65% of their sales come from returning customers, which shows that consumers are happy with their products and will continue to shop with VistaPrint. As they continue to expand their product offerings businesses will have more and more opportunities to grow their business through VistaPrint, which in turn grows VistaPrints business.
Strong Product & International Growth
VistaPrint has entered into strategic partnerships with OfficeMax and Intuit, so that consumers can find VistaPrints product offerings at retail locations. I believe this will be one of the strongest drivers for future growth as the firm looks to find new ways to reach out to the large market that it operates in. International growth will also be a key driver for future growth as the company becomes more global. International sales accounted for about 39% of net income in this fiscal year up from 32% in the prior year. While the firm noted that the macroeconomic slowdown has not had any significant material effects on business operations, expanding operations globally is always a positive in a ever increasing global economy. With a new management team positioned in Barcelona, Spain, the company is well positioned to begin to take advantage of the vast opportunities in international markets, particularly in Europe.
Financial Highlights & Recommendation
- Free Cash Flow (ttm): $18.0 million
- ROIC: 33.8%
- P/E (ttm): 35.63x
- Forward P/E: 15.86x
- PEG: 0.64x
- Operating Margin: 10.27%
Given the company’s niche technology and strong market share, along with strong projected growth well into the future, I believe it deserves to trade at a higher multiple than its competitors, which it is doing. With a forward P/E much lower than the P/E(ttm), I would expect the stock price to appreciate significantly in the future as the company hits their growth targets and EPS estimates. The company turned positive in the free cash flow metric this year, with strong margins superior to competitors as they continue to offer the best value for small businesses to maintain and grow their business. As we know one of the best way to value a business is by discounting future free cash flow, so as this firm continues to generate more FCF, we will see more value added for their shareholders. With a significant portion of revenues coming from returning customers, along with a constantly growing consumer base, I see no reason why this company will not be able to hit their growth targets well into the future, while providing a neccessary service for small businesses.
-Vinay Ayala
Disclosure: None
The Following Stocks Were Mentioned In This Article: VPRT
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