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Shutterfly IPO plans take flight

Online photo service launched by Netscape founder before Net bubble wants to raise $92 million.

Shutterfly, an online photo service launched by Netscape founder Jim Clark before the Internet bubble, submitted its IPO filing with the Securities and Exchange Commission on Thursday.

Aiming to raise $92 million, based on its IPO registration filing fee, the company, now 6-years-old, faces increasing competition in the online photo services market. Rivals include Snapfish, which was acquired last year by Hewlett-Packard, and Flickr, which was snapped up last year by Yahoo.

A clearer picture of investors' interest in Shutterfly is expected to emerge in the coming weeks and months as it updates its IPO filings with information on the number of shares it will offer and their price range.

The company's revenues grew to $47 million last year and it has been profitable for at least three consecutive years. Last year Shutterfly posted a profit of $4.4 million before income taxes and accounting changes, according to the company's SEC filing. But when including income tax benefits and accounting changes, Shutterfly posted net income of $28.9 million last year.

For Clark, whose Shutterfly received much fanfare in its early days, the IPO could add greatly to his wealth. The Shutterfly chairman, through his various investment funds, holds a 40 percent stake in the company, according to the company's SEC filing.

Shutterfly, however, faces significant challenges. A number of its rivals have been snapped up by Fortune 500 companies in the past five years. In addition to HP's acquisition of Snapfish and Yahoo's merger with Flickr, photo giant Kodak acquired the service formerly known as Ofoto, which counted former Netscape executive Jim Barksdale as an investor, in 2001.

Its rivals' deep pockets may also put Shutterfly at a disadvantage in a price war. During the second quarter last year, some of its competitors cut their price on 4-by-6-inch prints from 29 cents to 12 cents. Shutterfly responded by slashing its price to 19 cents for the same size print.

"Our larger competitors could elect to further reduce the list prices of their 4x6 prints, or use lower pricing of prints as a loss leader," Shutterfly noted in its SEC filing.

HP, for example, relies on its Snapfish business as a means to help drive sales of its printer ink cartridges.

Snapfish noted it had nearly 14 million subscribers when it closed its sale to HP last year. Shutterfly has fulfilled more than 11 million orders since its inception in 1999. The two companies launched roughly within the same period.

Yahoo, meanwhile, announced this month a beta test of its Yahoo Photos, using the Flickr technology it acquired. Yahoo Photos is targeting the mass market, while Flickr aims to serve the serious hobbyist and professionals.

Shutterfly plans to trade under the ticker SFLY. Goldman Sachs and J.P. Morgan Securities are the lead underwriters, with Piper Jaffray & Co. and Jefferies & Co. serving as co-managers.