2016 ANNUAL REPORT February 13, 2017

2016 ANNUAL REPORT February 13, 2017 Dear Shutterfly Shareholders, Joining Shutterfly 10 months ago was an easy decision. Shutterfly’s market-leading position, beloved brand, loyal customers, vertical integration, consumer technology, and dedicated team give us a strong base from which to build. At the same time, the explosion of digital photography, the increasing desire for personalization and individual expression, and rapid advances in digital manufacturing technology present a large opportunity that we are uniquely positioned to address. As we consider our opportunities, we’ve established a few principles to guide our thinking: innovate on behalf of customers, delivering great experiences; focus on a small number of high-potential opportunities; optimize for the long-term; and seek sustainable growth balanced with profitability. With these principles firmly in mind, we announced important changes to the business at the beginning of 2017. We are significantly simplifying our Consumer business as the first step in a longer-term strategy: focusing our resources on four high-potential areas of opportunity, reducing overhead costs, consolidating our Consumer businesses onto a single platform, and setting ourselves up both to deliver greater profitability and to re-invest in the business for future growth. Going forward, our Consumer vision is to help people share life’s joy by being the leading online retailer and manufacturer of high-quality personalized products, complemented by our Enterprise vision of being the leading digital manufacturing platform for business. Our strategy for the next three to five years, supporting that vision, has four components: (1) make purchasing personalized products simple, (2) expand our range of categories and products, (3) pivot towards mobile, and (4) leverage our manufacturing platform. We made good progress against each of these four areas of strategic focus in 2016. We simplified and improved our customer experience by introducing Shutterfly Photos, our cloud photo management service; launching significantly improved apps for iOS and Android; and improving the speed and reliability of our sites and apps. We continued expanding our product range: the Home Décor and Personalized Gifts categories now account for more than $100 million in sales, growing at a double-digit rate. Mobile app revenue more than doubled year- over-year. And Shutterfly Business Solutions (SBS) grew 39% as we put our world-class manufacturing platform to work on behalf of other companies. The path we’ve embarked on will surely have twists and turns. While we seek to optimize for the long-term, our plan seeks to strike a balance between investing for growth and delivering improvements in profitability. During the transition period of 2017 and 2018 we expect slower growth, but at the same time expect to deliver improvements in profitability and quality of earnings while funding re-investment in the business. We believe investments in innovation for both Consumer and Enterprise customers will position us for faster growth in 2019 and beyond. We’re excited about the opportunities that lie ahead of us, and hope that you’ll decide to join us on the journey. On behalf of all of us at Shutterfly, I want to thank our customers for their passion and loyalty, and our shareholders for their continued support. Sincerely, Christopher North, President & CEO UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-K (Mark One) È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 or ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-33031 SHUTTERFLY, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 94-3330068 (State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.) 2800 Bridge Parkway 94065 Redwood City, California (Zip Code) (Address of Principal Executive Offices) Registrant’s Telephone Number, Including Area Code (650) 610-5200 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, $0.0001 Par Value Per Share Nasdaq Global Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘ Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ‘ No È Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘ Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes È No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one) Large accelerated Filer È Accelerated Filer ‘ Non-accelerated Filer ‘ Smaller reporting company ‘ (Do not check if a smaller reporting company) Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È As of June 30, 2016, the last business day of our most recently completed second fiscal quarter, the aggregate market value of our Common Stock held by non-affiliates based on the closing price of our Common Stock on June 30, 2016 as reported on the NASDAQ Global Select Market was $1,582,407,110. Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Class Outstanding at February 12, 2017 Common stock, $0.0001 par value per share 33,650,562 DOCUMENTS INCORPORATED BY REFERENCE Designated portions of the Proxy Statement relating to our 2017 Annual Meeting of the Stockholders (the “Proxy Statement”) have been incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this Form 10-K, as specified in the responses to the item numbers involved. Except for information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part hereof. Shutterfly, Inc. Table of Contents Page Number PART I ITEM 1. Business .................................................................... 1 ITEM 1A. Risk Factors ................................................................. 11 ITEM 1B. Unresolved Staff Comments .................................................... 39 ITEM 2. Properties ................................................................... 39 ITEM 3. Legal Proceedings ............................................................ 40 ITEM 4. Mine Safety Disclosures ....................................................... 40 PART II ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ........................................................... 41 ITEM 6. Selected Financial Data ........................................................ 42 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . 43 ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk ........................... 64 ITEM 8. Financial Statements and Supplementary Data ...................................... 65 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . 105 ITEM 9A. Controls and Procedures ....................................................... 105 ITEM 9B. Other Information ............................................................ 106 PART III ITEM 10. Directors, Executive Officers and Corporate Governance ............................. 107 ITEM 11. Executive Compensation ....................................................... 107 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..................................................................... 107 ITEM 13. Certain Relationships and Related Transactions, and Director Independence .............. 107 ITEM 14. Principal Accounting Fees and Services ........................................... 108 PART IV ITEM 15. Exhibits and Financial Statement Schedule ........................................ 109 PART I Except for historical financial information contained herein, the matters discussed in this annual report on Form 10-K may be considered forward-looking statements within the meaning

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