UPDATE: Cowen & Company Downgrades Shutterfly

In a note released Tuesday, Cowen & Company analyst Kevin Kopelman downgraded Shutterfly (NASDAQ: SFLY) from Outperform to Underperform and lowered the price target from $57 to $39.

In detailing his position on Shutterfly, Kopelman began with a look at slowing organic growth which he says is being obscured by recent acquisitions. Kopleman estimated that in 2013 Shutterfly's organic consumer revenue growth rate was 15 percent compared to a 17 percent overall growth rate for U.S. e-commerce.

This marks the first time since the company was founded in 1999 that it has not beaten the industry growth rate. Kopelman notes that this may be in part due to Shutterfly "significantly lagging" the industry on mobile devices with only 8 percent of of Shutterfly-branded revenue coming from mobile.

Turning to acquisitions, Kopleman believes, "The deals for Kodak Gallery and MyPublisher may be the start of a trend of buying temporary boosts to revenue and EBITDA."

He goes on to say, "The low stated acquisitions multiples are misleading since they are declining, 'melting ice cube' businesses, which become a drag on growth a year later." Kopelman concluded his discussion of acquisitions by noting he is "skeptical" of the $47 million value put on Shutterfly's recent acquisition of BorrowLenses and by pointing out the low performance of ThisLife (a cloud storage service), which Shuttefly acquired for $28 million.

In a final look at Shutterfly, Kopelman stated that EBITDA may "no longer be a relevant valuation metric for Shutterfly." To justify this claim, Kopelman points to the decline in GAAP EBIT operating profit, which is guided to be $2 million on the high end in 2014E, down from $22 million in 2013 and $41 million in 2012. Kopleman explains this is the result of rapidly increasing depreciation, stock comp expense, and amortization which are a reflection of higher capital expenditure, restricted stock grants, and acquisitions.

To conclude, Kopleman noted that investors have been focused on the"relatively stable" 18-20 percent EBITDA margin and stated, "The extreme and growing disconnect between EBITDA and EBIT makes Shutterfly an outlier compared to its closest Internet comps and is a strong argument for re-thinking the company's EV/EBITDA multiple."

At last check, Shutterfly was trading down just under 6 percent at $47.45.