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GETTY REPORTS EXCELLENT FOURTH QUARTER
February 10, 2000
Getty has announced their fourth quarter results for the year
ending December 31, 1999. They reported $79.9 million in sales
in the 4th quarter up significantly from $60.8 million in the
third quarter. Their total sales for 1999 were $247.8 million.
This growth was partially due to the acquisition of The Image
Bank in November, but TIB sales accounted for only $8.7 million
of this growth.
TIB revenues for the first six months of 1999 were $38.1 million.
Thus, if they had zero
growth in the second half they should have generated approximagely
$7,933,150 in sales for the 38 days they were owned by Getty. In
fact, they generated $8.7 million in sales which is $766,850 higher.
This would
indicate 10% growth for the second half of the year if sales
levels were consistent throughout this period.
One sector of Getty's business that showed significant sales
growth was the Consumer Channel which includes Art.com and
American Royal Arts (acquired in October 1999). This sector
achieved sales of $4.3 million in the fourth quarter and $6.1
million for 1999. However, due to continued investment in
Art.com, principally to generate sales, there was a $5.8 million
EBITDA loss in the Consumer Channel.
E-commerce
The percent of the business generated from e-commerce continued
to be strong in the fourth quarter with $24.5 million in sales.
This was a little over 30% of total sales. Twenty percent of
Tony Stone Images sales in the fourth quarter were from
e-commerce. Over 50% of PhotoDisc sales were e-commerce at the
end of 1999. It is worth noting that in the third quarter before
TIB joined Getty 32% of gross sales were e-commerce, possibly
indicating some leveling of e-commerce sales as a percentage of
the total. Actual sales did grow from $19.4 million in the third
quarter to $24.5 in the fourth quarter. Total e-commerce sales
for the year were $67.9 million or 27.4% of gross sales.
If we exclude TIB's sales from Getty's total then e-commerce
represented 34% of total fourth quarter sales. Getty argued that
TIB's sales figures should be excluded when calculating
percentage of e-commerce sales because TIB had not been fully
integrated into the Getty e-commerce system. However, they also
pointed out that part of the reason for TIB's high fourth quarter
participation in their bottom line was the fact that they had
begun to make sales through www.gettyone.com.
In October, 1999 we reported that earlier in 1999 Mark Getty had
stated that in five years all of Getty's image delivery would be
digital. Jonathan Klein has also been quoted in several places
as saying Getty's entire business would be on the web in three
years.
Now Robertson Stevens, one of Getty's lead investment bankers, is
telling their clients, "Getty is targeting eCommerce to
contribute 50-60% of total revenues in 3-5 years."
Profits
One interesting thing is the growth in EBITDA (profits). Morgan
Stanley, Getty's lead investment banker, had estimated that sales
for the quarter would be $61 million, and that EBITDA would be
$9.1 million. In fact, sales were up almost $19 million over
Morgan Stanley's estimate, but profits were only $300,000 higher
than expected, or $9.4 million.
The fact that there were so little profits from the additional
sales could indicate heavy promotion expenses. Getty did
acknowledge in a conference call to investors that they had (1)
higher costs in advertising, particularly for Art.com, (2) acquisition
costs (3) continued investments in management, new sales offices, and
business systems and (4) the completion of the relocation of the
corporate offices from London to Seattle.
Morgan Stanley is estimating that Getty, with its current brands,
will have $374 million in revenue in 2000 and EBITDA of $62.5
million or $1.31 per share.
Photographers
Many Tony Stone photographers indicated that they had their best
checks ever in January 2000, after months of disappointing
royalty payments.
In a conference call one analysts asked about reports that there
were problems with some of their photographers. Jonathan Klein's
answer was, "We had some problems in 1998, but now we think our
relationships with photographers have improved."
In line with the Company's strategy to increase the range of
products and services it supplies to customers, Getty Images
made a strategic investment in LicenseMusic.com, the first
complete one-stop source for music licensing and purchasing over
the Internet. The move also reflects the rapid convergence of
music and imagery on the Internet. LicenseMusic.com's audio
content will be available in the year 2000 on gettyone.com
Rumors
A rumor we have heard from several sources is that Getty will
announce the acquisition of Visual Communications Group (VCG)
within six weeks. If that comes to pass the price will probably
be around $200 million. Getty had $105 million in cash at the
end of 1999, which could be used for this purpose. It would seem
likely that they will make another secondary stock offering to
raise the additional capital necessary to complete the purchase.
If Getty acquires VCG, by our estimates they will control more
than 30% of the total stock photography market, worldwide.