378 GETTY YEAR 2000 RESULTS
February 9, 2001
Getty Images, Inc reported 4th Quarter 2000 revenue of $129.4 million, up
less than 2% from $127 million in the 3rd Quarter. Gross revenue for all of
2000 was $484.8 million.
Getty has reported minimal quarter-to-quarter revenue growth all year.
Getty's pro forma revenue for 1st Quarter 2000 was $124.9 and some minor
acquisitions in June and the buy back of TIB's London operation should have
The basically flat 3rd Quarter to 4th Quarter sales are all the more amazing
considering that PhotoDisc, which represents almost one-quarter of Getty's
gross sales, instituted a 20% to 25% price increase (depending on the size of
file ordered) in September. This alone should have resulted in more than $5
million in increased revenue for the 4th Quarter if sales had remained level.
CEO, Jonathan Klein also reported the average sale for Stone in North America
is about $660 per image used. This is up from just a little over $500 the
previous year. Stone NA should represent in excess of one-eighth of Getty's
total revenue. If prices in NA are up this much, but quarter-to-quarter
revenue is flat, it must mean that the number of units sold is down.
When questioned by stock analysts during the conference call Klein refused to
acknowledge that there was any evidence in a slow down in sales volume.
Analysts had been predicting that Getty's 4th Quarter revenue would be $133
million. This was the first time in the company's history that it failed to
meet analysts' quarterly expectations. Getty did exceed analyst estimates for
EBITDA with a total of $30.7 million or 60 cents per share. Analyst
estimates were 56 cents per share.
"EBITDA" is defined as earnings before income taxes, depreciation,
amortization, interest, exchange gains and losses and, when applicable, loss
on impairment, debt conversion expense, integration and restructuring costs,
extraordinary items and other income and expenses. EBITDA should not be
considered as an alternative to operating income, as defined by generally
accepted accounting principles, as an indicator of our operating performance,
or to cash flows as a measure of our liquidity.
The shortfall in revenues was attributed to the company's consumer operation,
Art.com. This division represents about $19.2 million or approximately 4% of
Getty's total revenues. Revenues for the 4th Quarter were about $4 million
under expectations. Losses were $13.3 million for the year. Klein said that
Getty would not allow the consumer operation to become a drain on earnings in
2001. The company is reducing staff at Art.com by more than 50 people and
evaluating alternatives, including the "potential disposal of the business,"
according to Klein. In their projections for 2001 Getty does not any revenue
for Art.com beyond the 1st Quarter. (A little less than two years ago Getty
purchased Art.com for shares and cash worth $135 million, and has had
continual losses since the acquisition.)
Klein also noted that 4th Quarter revenues were lower due to a strong dollar
and that on a currency neutral basis revenues would have been $135 million
for the quarter.
Analysts interpretations of the news was reserved, but basically positive.
The stock was up almost 7% to 27 5/8 the day following the announcement.
E-commerce sales represented almost $49.3 million of the 4th Quarter revenue,
or over 38% of total revenues. Separating out VCG which Getty has only
started to e-commerce enable, 43% of all sales were on the web. For the whole
of 2000 there was $165 million in e-commerce sales, or 34% of all revenue for
the year. This was a 134% increase in web sales over 1999. In the 4th Quarter
more than 40% of Stone sales were e-commerce; more than 60% of PhotoDisc
sales; about 60% of Allsport sales and more than 70% of EyeWire sales.
Klein said, "We expect that substantially all of our North American business
will be on the web in 3 years and substantially all worldwide business in 5
years. The trend is all in one direction and that is more on the web."
It should be noted that an e-commerce sale is one where the customer
uses the web to search for the image, but does not necessarily pay for the
transaction on the web, or receive delivery on the web. Getty classifies a
sale as "digital" or "analog" based on how the image is delivered. If a
image is delivered on the web it is classified as a "digital" sale. If any
type of "hard copy" is delivered it is called an analog sale. Thus, if a
digital CD-ROM disc is delivered to the customer it is classified as an
"analog" sale for Getty's accounting purposes. Getty has not provided any
statistics as to the percentage of sales that are "digital," but many
photographers report that they have very few sales where Getty takes a
digital royalty share as opposed to the lower (for Getty) analog royalty
Royalties To Creators
Klein said that in 2000 they paid about $120 million to photographers and
filmmakers which is a little less than 25% of total revenues. Rights
Protected photographers should recognize that Getty wholly owns its Hulton
Getty collection, most of the material handled by AllSport and much of the
PhotoDisc imagery. Thus, if we only looked at the revenue generated by those
who are entitled to royalties, the average paid would undoubtedly be
The company's average gross margin grew from 70.5% in the 3rd quarter grew to
72.5% in the 4th Quarter and was led by faster growth at Stone.
Klein mentioned that later this quarter Getty would be introducing a new
contract that would provide "fair and equitable treatment to photographers
across all brands." He said, "Getty Images has been, and will continue to
be, a financial gold mine for high quality commercial photographers. There is
no doubt that the contracts are more favorable to our photographers than the
contracts that we inherited with the acquisitions of VCG and The Image Bank
and there are also many improvements to the terms concerning photographers.
Nevertheless, we do not expect this contracts to have a material impact on
our 2001 financial results and the guidance (2001 expected revenue of $550 to
$565 million) includes the implications of the new contract."
In her report Rebecca Runkle of Morgan Stanley Dean Witter said, "One method
to monitor the success of the new contract is to watch the speed with which
the VCG/TIB photographers transition (the faster the better). Getty doesn't
expect these changes to have a material financial impact, as the reduced
rates from the web sales are expected to offset higher outlays due to
During the conference call the analysts showed little interest in, the
photographer contract or the recent letter from the StockArtistsAlliance
outlining issues of concern that were not dealt with in the contract outline.
Story 375 .
Likewise, the analysts showed no concern about the Penny Gentieu lawsuit
or the recent ASMP letter to the SEC.
Story 376 .
Other Items Of Interest
Image Bank sales grew over 10% in the 4th Quarter compared with 4th Quarter
1999 and the sequential growth between 3rd Quarter 2000 and the 4th Quarter
Sixty-five percent of Getty's revenue comes from creative professionals that
work for advertising agencies and graphic design firms. Other customers
include: Publishing (Newspapers, magazines and web sites) 17%, Corporate
Accounts 10% and Film 8%.
Fifty-nine percent of sales were in North America, 36% in Europe and 5% in
the Rest of the World.
TIB sales grew over 10% on the 4th Quarter compared with 4th Quarter of 1999.
Sequential growth from 3rd Quarter to 4th Quarter was also 10%. VCG did not
grow in the 4th Quarter compared with the 3rd Quarter.
Klein also acknowledged that there was some weakness in film sales.
Expected Sales In 2001
The company lowered its revenue guidance for 2001 from a growth of 20-22% to
14-17% and estimated that sales would be between $550 million and $565
million. The company had a net operating loss of $0.67 vs. $1.50 previously.
Flat Revenue Analysis
Flat revenue implies that pricing gains are COMPLETELY offset by unit sale
decreases. Are the recent price increase driving down unit volumes, and does
that mean that Getty (or others in the industry) should cut prices to
increase volume? My belief is that there are two other factors that are
having more of an effect on unit volumes than price.
First, there is strong anecdotal evidence from other suppliers to indicate
there was a reduction in the number of calls in November and December. This
seems to be continuing in January. I believe some images user have been
delaying or cancelling projects as they try to retrench with the anticipation
of a slower economy. This is happening not because the picture (a very minor
part of the total project cost) is to expensive, but because they need to cut
the total expense of the project itself. For the most part buyers are not
going to other cheaper sources, but are simply reducing their overall buying.
Secondly, in the Royalty Free area another thing seems to be happening. For
years RF buyers kept ordering new discs with 100 different images every time
they needed a new image for a new project. They would bill the cost of the
disc to the client and throw the disc in a box in the corner of their office.
Now, as the economy begins to get tight for these graphic designers they go
to that box in the corner, find an image they can use on their next project,
and bill their client an image usage fee of which they get to keep 100%. If
there is a real slow down in the economy, the Royalty Free strategy of
selling each customer their own individual library could finally come back to
haunt the RF producers, and the entire industry.
In the last recession there was no RF so Rights Protected stock benefited,
when the costs were compared with assignments. In the next recession the RF
libraries that have already been sold may be the lowest cost option for the
Additional Figures From Press Release
Revenue for the fourth quarter of 2000 was $129.4 million, a 61.9 percent
increase over revenue for the fourth quarter of 1999. For 2000, revenue was
$484.8 million, a 95.6 percent increase over 1999 revenue. Organic revenue
growth in the fourth quarter, excluding all acquisitions made in the last
twelve months, was 26.4 percent and was 29.4 percent for 2000. On a currency
neutral basis, revenue for the fourth quarter was $135.0 million,
representing revenue growth of more than 68 percent over the same period in
1999. E-commerce revenue in the quarter more than doubled over the fourth
quarter of 1999 to just under $50 million, representing 38 percent of total
sales for the company.
EBITDA increased 225 percent over the fourth quarter of 1999 to $30.7
million, or 60 cents per share, exceeding average analyst estimates of 56
cents per share. The EBITDA margin increased from 11.8 percent in the fourth
quarter of 1999 to 23.7 percent in the fourth quarter of 2000, and increased
from 14.1 percent in 1999 to 19.5 percent in 2000. For its
business-to-business operations, the company achieved EBITDA in the fourth
quarter of $34 million at an EBITDA margin of 27.4 percent, and in 2000, the
company recorded EBITDA for business-to-business operations of $108.7 million
at an EBITDA margin of 23.4 percent.
After tax cash flow for the fourth quarter was 44 cents per share, compared
with 21 cents per share in the fourth quarter of 1999 and compared with the
First Call estimate of 41 cents per share. After tax cash flow per share for
the year was $1.39, compared with 80 cents per share in 1999.