On Course to Reach Profitability One Year Ahead of Schedule; Success Attributed to Company's Proprietary State of the Art Technology, Effective Promotions and Aggressive Cost Reductions

REDWOOD CITY, Calif.--(BUSINESS WIRE)--July 23, 2002-- Shutterfly, the leading online photo service, today announced its six month results with the expectation that it will reach profitability on an EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) basis end-of-July, nearly one year ahead of schedule.

Revenues for the first six months of 2002 nearly doubled over the same period last year (87% growth) with customer uploads increasing 74 percent and print volume increasing 63 percent. The number of prints per order continued to grow, averaging 27 prints over the past 12 months. Early second quarter results topped those numbers, reaching an average of 29 prints per order. And the conversion rate of those who uploaded images and then ordered products rose 12 points to 76 percent.

"Shutterfly is the only major, independent online photo service today in a field that used to number in the hundreds," said Andy Wood, president and CEO of Shutterfly.

"Our financial strength is the direct result of overwhelming consumer response to our customer-friendly site, innovative personalized products and our value-driven promotions," adds Wood. "We have recognized cost efficiencies through significant infrastructure and proprietary technology investments, which have enabled us to improve site performance and meet the rapid increase in demand by more than doubling our capacity. We have also dramatically reduced our customer acquisition costs from $150 per customer to less than six dollars."

Shutterfly has been called a "bellwether for the online photo market" by InfoTrends Research Group in its May 2002 industry report, which noted that if Shutterfly does reach profitability, "it will be a significant achievement not only for Shutterfly, but for the digital imaging industry as a whole."

"We have focused on the customer, offering them the broadest possible choices in digital photo processing coupled with the best, most responsive customer service. I believe the numbers reflect their satisfaction with Shutterfly," said Wood.

People are turning to digital photography in greater numbers as evidenced by recent Gartner Dataquest projections that digital camera penetration will reach 17 percent of all U.S. households by year-end and about half by 2006.

About Shutterfly

Shutterfly, the leading online photo service, leverages its proprietary technology and understanding of its customers to develop personalized, quality photo products and services that make it simple and fun for people to stay connected to those who matter most. Film and digital photographers alike can enjoy the benefits of Shutterfly's photo services, including high-quality prints, image enhancements, personalization, free online storage and picture sharing. Customers can custom back-print and transform their pictures with special effects and borders as well as create photo cards, invitations, calendars and Snapbooks(TM), all of which can be mailed anywhere in the world. Shutterfly is consistently recognized for its photo quality and innovative features, and was most recently rated best overall online photo service in a field of twelve by MacWorld in its June 2002 issue. Shutterfly is based in Redwood City, CA. For more information, visit www.shutterfly.com.