Short ALERT Research

MOST DANGEROUS STOCKS August, 2007

SFLY SHUTTERFLY INC Current Price $27.15 Market cap $661

Price, 52-wk Hi/Lo $25.91 / $12.05

Shutterfly Inc. provides an Internet-based social expression and personal publishing service that enables consumers
to share print and preserve their memories through the medium of photos.

Daily Price Weekly Price Monthly Price

30 30 30

20 20 20

10 10 10

0 0 0

Last 100 Days Last 100 Weeks Last 100 Months

Options? No Recent convertible No Convertible debs and pfd 1 $0

PE TTM 90.5 x Insider ownership 24 % Next earnings due: 11/7/2007
Estimated PE 71.1 x Potential dilution 2 9 % Bankruptcy Z-Score 3 8.4

Short Activity Warning 4 Free Cash Flow Distress Score 5

5
0 4
-2 3
2
-4 1
0
-6 -1
-2
-8 -3
-4
-10 -5
Feb Mar Apr May Jun Jul Jun Sep Dec Mar Jun Sep Dec Mar
Months Quarters
0.0 = No warning fm shorting activity; -10.0 = Max warning 5.0 = Max cash flow benefit; -5.0 = Max cash flow distress

Insider Activity 6 Revenue Growth - Trailing 12mths

200.0%
100.0%
80.0% 150.0%
60.0%
100.0%
40.0%
50.0%
20.0%
0.0% 0.0%
Feb Mar Apr May Jun Jul Jun Sep Dec Mar Jun Sep Dec Mar
Months Quarters
Black = selling; White = filing to sell; Gray = buying

RED FLAGS
Ability to meet expectations Early balance sheet warnings Stock selling signals
12 17
High P/S ratio TTM 7 0 Rising inventory to sales 0 High insider selling 0
8 18
Negative free cash flow 0 Rising accounts receivable 13 0 Large institutional ownership 0
19
Sales growth slowdown 9 0 High long-term debt to capital 14 0 Co sales of common stock 0
Accounting issues Stock and debt ratings
10
Change in actg principles 0 Recent downward earns ests 15 0
Qualified audit language 11 0 S+P Debt Downgrade 16 0

INVESTMENT CONCERNS
Current market trends appear to be moving away from Shutterfly, which stores and prints photos online. The site has
three distinctive features -- high prices per print, storage and viewing but no sharing, and a simplicity that is not
always user-friendly. The online world, however, is moving towards photo-sharing as Photobucket and similar sites
take share, and a recent WSJ review panned Shutterfly's site. Apple's announcement today also emphasizes
community-building aspects. None of this is consistent with a multiple of 80x earnings.

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