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Analyst lowers Shutterfly rating, price target

NEW YORK (AP) -- A Cowen and Co. analyst is downgrading Shutterfly, saying the online photo company is seeing its profit fall and growth slow due to tough online competition, pricing pressure and a lackluster mobile performance.

Kevin Kopelman lowered Shutterfly Inc. to "Underperform" from "Outperform." The analyst also cut the company's price target to $39 from $57.

In a client note Tuesday, the analyst said Shutterfly has gained market share against Snapfish and retailers like Costco and Wal-Mart, but online competition remains difficult. Drugstores like CVS and Walgreens are also doing well using their local stores to keep photo product business, he added.

Aside from this, heavy discounts have continued in the sector since 2011's fourth quarter, Kopelman explained. While Shutterfly ramped up its discount offers in 2012 and participated in flash sale sites, the analyst said that discounting got more intense in 2013 — with Snapfish running "Buy 1, get 2 free" deals and Shutterfly regularly giving customers an additional 20 percent to 40 percent off sale prices via email.

"We no longer expect to see pricing improve, and now believe discounting is likely part of a longer term trend, driven in party by excess printing capacity in the industry and slower growth in consumer demand," he wrote.

In addition, Kopelman said that only 8 percent of Shutterfly-branded revenue came from mobile devices during the fourth quarter. The analyst pointed out that this is better than the 3 percent reported for 2013's first quarter, but is still below the estimated 13 percent for the overall U.S. online industry.

A representative for Shutterfly of Redwood City, Calif., did not immediately respond to an email seeking comment.

The company's stock fell $2.99, or 5.9 percent, to $47.44 in morning trading. Over the past year, the shares are up 15 percent.