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GETTY HAS OUTSTANDING FIRST QUARTER
May 12, 2000
Getty Images, Inc. has announced first quarter results that significantly exceed
investor expectations. Revenue for the quarter rose to $104.8 million, up from $79.9
million in the 4th quarter of 1999. Wall Street analysts were predicting gross revenue of
approximately $85 million.
This impressive 31% growth was driven by recent acquisitions and by further growth in
e-commerce revenue. All brands had increases in volume and price, in all countries.
If we remove the two most recent acquisition TIB and VCG from the comparative figures
there was a 17% revenue growth for Stone, PhotoDisc, and the other Getty assets during the
quarter. That would put them on track for a 68% annual growth, but in his conference call
with investors Jonathan Klein reinterated that he was confortable with a 25-30% organic
growth for 2000. This is fantastic growth when compared with what appears to be happening
in the rest of the industry. Klein also said Getty's target for the next three years
was 25% annual growth.
Business-to-business transactions represent 96.4% of all revenue. The other 3.6% comes
from consumers. In talking about internet use Klein told investors during the conference
call, "In 99% of the cases the images still appear in print. The internet - as a market - is
still in very early stages."
E-commerce
E-commerce revenue was up to $31.5 million. VCG and TIB, which were recently acquired,
did not contribute to this e-commerce revenue because their businesses were almost entirely
analog during the quarter. The $31.5 was up from $24.5 million in the the
4th quarter. In spite of the real growth of the e-commerce revenue, as a percentage of
total sales it was down slightly from 31% to 30%. E-commerce sales for the 3rd quarter of
1999 was at 32% of gross sales.
Klein has continually emphasized that recent growth is a result of the success of the
company's core strategy of pulling images out of filing cabinets and making them available
to clients on-line in an e-commerce environment. What's insteresting is that the relationship
between e-commerce and analog sales seems to have stabilized at a comparatively low level of
e-commerce use. Both e-commerce and analog are growing at about the same rate. It will
be very interesting to see what happens in future quarters as TIB and
VCG are fully e-commerce enabled.
Getty has been trying to convert its business from delivering images by traditional
means to internet delivery. A year ago Klein and Mark Getty
were quoted as expecting 100% of their sales to be on-line within three years. By fall they
were estimating that eventually 60% of the business would be e-commerce. Right now it is
looking like there is some magic in the 30% e-commerce level. Photographers and competing
agents should closely monitor this trend.
TIB and VCG
Getty said that the $31.5 million was 38% of sales, "excluding TIB and VCG." That would
put gross sales, excluding these companies, at about $83 to $84 million. Thus, if
sales of VCG were $3.7 million sales of TIB would have been about $19 million. (TIB's
sales for 38 days at the end of the 4th quarter were $8.7 million. If we extrapolate
for a full quarter, level sales should have generated about $20.6 million. It is not
surprising that TIB sales would be level or down slightly until the integration is complete.)
On the other hand VCG contributed $3.7 million to Getty's gross revenue, after being part
of Getty for only 9 days in March. That is an average $411,000 per day for a quarterly
rate of $37.5 million or $150 millon per year. It should be noted that VCG's 1999
revenues were only $90 million. Thus, there were probably some large, end of quarter,
payments that accrued to Getty rather than the former owners of VCG which, in effect,
represented more than just 9 days of revenue.
During the conference call Klein said TIB and VCG contributed almost nothing to 1st
quarter e-commerce sales, but Getty currently has 60,000 TIB images up on line. He also
said that VCG had a larger percentage of images scanned and ready
to go online than TIB, at the time of purchase of the two companies. He also added that
investors (and suppliers) should not expect the integration of VCG to be as fast as it
has been with TIB.
Klein said the integration of TIB is ahead of schedule and they have reduced the staff
head count by 120. They have closed the TIB headquarters office in Dallas and the offices
in Tuscon and Madison, Wisconsin. In this quarter they intend to close the San Francisco,
Atlanta and other Dallas offices and consoldiate all the New York offices to a single
location.
Stone Revenue Growth
Stone's revenues worldwide have grown 45% since April 1, 1999, and 70% in North America.
Getty didn't break out Stone's revenue, but by extrapolating from the press release
data provided, and other information I have obtained in the past few months, I estimate that
Stone's share of the $104.8 million was about $35 million for this quarter. Looking back
to the 1st quarter 1999, Stone's revenue at that time would have been approximately $23.5
million.
These numbers do not track at all with the information in Selling Stock's 1998 and 1999
photographer surveys. We had responses in those surveys from 46 photographers in 1998 and
47 in 1999. The average photographer share of the income from Stone in 1998 was $62,718
and $45,644 in 1999. (See Story 297
for more details.)
That doesn't indicate growth. Granted the surveys were not random,
and clearly the photographers responding must not be representative.
I believe sales of wholly owned images are the best explanation as to why Stone's revenues
are headed in one direction while photographer royalty payments are headed in the other.
Klein was not specific on the amount of wholly owned sales, but he did make the point that
they contributed to the growth in EBITDA (profits) for the company.
Klein said that the "average transaction (at Stone) has broken through the $1000 mark."
This is up from about $800 a year ago. Klein also
said in the conference call that they are selling more images per transaction, but he
didn't give a number so it is impossible to calculate the average price per image sold
which is a number of much more interest to individual photographers. I had previously
heard a number of 1.7 images per transaction. I suspect the average is now somewhere
over 2 images per transaction.
Accounting For The Rapid Rise
It should be noted how rapid this one quarter rise is -- even for Getty. The following
are the revenue numbers for the last six quarters for Getty. (The dollar figures are in
millions.)
4th 1998
|
1st 1999
|
2nd 1999
|
3rd 1999
|
4th 1999
|
1st 2000
|
$50.1
|
$52.2
|
$55.0
|
$60.9
|
$79.9
|
$104.8
|
Note that the 3rd quarter revenue was impacted by the acquisition of EyeWire and the 4th
quarter was impacted by a full quarter of EyeWire, $8.7 million from TIB, and $4.3 million
from Art.com and American Royal Arts.
I see no indications that there are any factors that occurred in the first quarter of 2000
that would have caused a major growth in industry usage as a whole. Certainly nothing
that would result in an almost doubling of revenue growth from the previous quarter, which
is what occurred for Getty's major brands. The rise can not be attributed to increased
use of e-commerce as explained above. It seems to me that this additional growth, over and
above their normal levels, must be attributed
almost entirely to Getty taking market share from other stock photo sellers.
In his conference call with investors Jonathan Klein said, "We are continuing to take
market share from the vast bulk of the mom and pop companies, as well as to continue to
beat the Corbis brands in the market. The competive environment is wholly favorable to
Getty images. We have always beaten those brands (the ones recently acquired by Corbis)
in the market and the fact that they are
now owned by another company makes absolutely no difference in the day to day battle for
sales which year after year we continue to win."
Breakdown of Revenue
As we noted earlier Getty does not break down revenue by brand, but it is helpful for
photographers to have some idea of what the brands with which they are involved are
generating and how they contribute to the whole company. Based on information Getty provided in
the press release and the conference call, and other information I have obtained over the
past few months I have made the following approximations of 1st quarter 2000 revenue.
Agency
|
Dollars in Millions
|
Stone
|
35.0
|
PhotoDisc
|
23.5
|
Allsport
|
6.5
|
Hulton Getty (Archive)
|
5.2
|
EyeWire (Artville)
|
3.5
|
Liaison
|
2.0
|
Newsmakers
|
.5
|
Art.com (American Royal Arts)
|
4.0
|
TIB Footage
|
6.8
|
Energy
|
2.0
|
TIB Stills
|
12.1
|
VCG
|
3.l7
|
The following indicates the respective share I believe each brand contributed to the e-commerce revenues of $31.5 million.
Agency
|
Dollars in Millions
|
Stone
|
12.0
|
PhotoDisc
|
11.0
|
EyeWire
|
2.3
|
Allsport
|
2.2
|
Art.com
|
4.0
|
Other Information
Klein said that 20% of the business is coming from new customers. About half of the
registered user have not used the brands previously.
Getty will be launching a system - probably in the 4th quarter - to handle digital asset
management for others who want to move images on the internet. This is a major business
for PictureQuest, and evidentially Getty intends to move into that market. Klein pointed
out that many of their press customers
want assistance in moving image files, and in marketing some of the images they produce.
According to Klein they will have a system where images can be uploaded within ten or
fifteen minutes of shooting. The schedule is to roll out the system for a few customers
in time for the Olympics, and make it fully available in the 4th quarter.
Getty has 47.6 million shares outstanding and had a basic loss per share for the quarter
of $.46. (The loss per share excludes integration and restructuring costs, debt
conversion expenses and extraordinary items.) The stock market seemed to ignore Getty's
great revenue story. The stock price went down 10% to 29 3/16th on the day of the
announcement.