4JUPITERMEDIA THIRD QUARTER
November 4, 2005
Jupitermedia has reported third quarter of 2005 revenues of $34.4 million compared to revenues of $15.8 million for the same period last year, an increase of 118%. Net income for the third quarter was $60.4 million, or $1.62 per diluted share, compared to net income of $5.1 million, or $0.15 per diluted share, for the same period last year. Net income for the third quarter of 2005 included a gain of $29.1 million, net of income taxes, related to the sale of Jupitermedia's Search Engine Strategies events and ClickZ.com Network, as well as a $23.5 million benefit from the reversal of the valuation allowance related to deferred income tax assets.
"Our financial results for the third quarter included record revenues, operating income and net income," stated Jupitermedia's Chairman and CEO Alan M. Meckler. "We have been emphasizing the development of our JupiterImages division and the third quarter illustrates continued organic and overall growth in the sales and distribution of commercial images. The acquisitions of PictureArts in July and BananaStock in October further solidifies JupiterImages' position as a leader in stock imagery. We have made eight major images acquisitions since June 2003: ArtToday, Comstock, Thinkstock, Hemera, Dynamic Graphics, Goodshoot, PictureArts and BananaStock. We plan to continue our acquisitions program in the coming months."
Revenue for the JupiterImages division during the quarter was $24.011 million or 70% of total company revenue. A year ago the image division of Jupitermedia represented only 36% of total company revenue. For the first nine months of 2005 image revenue represents 63% of total revenue.
The highlights of the last quarter include the purchase of PictureArts in July and Banana Stock in October. The company also announced that Corbis would distribute selected images from the Comstock and Thinkstock image collections. And in August, Jupitermedia announced the launch of JupiterImages Unlimited (www.jiunlimited.com), the first subscription service that allows unlimited access, at multiple resolutions, to over 330,000 of JupiterImages' highest quality wholly owned stock photos from the following JupiterImages' brands: Brand X, Comstock Images, Creatas Images, Goodshoot, IT Stock Free, Thinkstock Images, Photos.com, AbleStock.com and PhotoObjects.net.
Also in August, Jupitermedia announced that Adobe® Stock Photos had added Creatas Images (www.creatas.com), Goodshoot (www.goodshoot.com) IT Stock Images (www.itstockfree.com) and Thinkstock Images (www.thinkstock.com) to its collection. This is in addition to Comstock Images (www.comstock.com), which was one of the five premier collections that was part of Adobe® Stock Photos when it was launched with Adobe Creative Suite 2 in April.
In October, Jupitermedia announced a new image collection entitled (re)view an archive of retro, rights-managed imagery, (re)view will launch in December 2005 with 4,000 select images at www.jupiterimages.com..
Jupiter is estimating revenue of over $39 million for the final quarter of 2005. On August 2, 2005 they announced guidance for the year of $139 to $141 million, but on August 25th revised these figures downward to $128 to $130 million. While lower than initially hoped this is still much higher than 2004 revenues of $71.9 million.
For 2006 the company has provided guidance of $163 to $165 million assuming there are no other acquisitions (which there undoubtedly will be.) (Rumors have it that we can expect to hear about the acquisition of a French RM company in the near future.) The $163 million would be a 27% growth next year without any acquisitions. Some of the analysts who follow the company are estimating 2006 revenues at about $160 million
Investors seem to feel that the two major challenges facing the company are:
(1) the impact on revenue of Getty's dumping of the JupiterImages brands, and
(2) the integration of a number of stock photo brands into a single smooth-functioning search engine.
Christopher Cardell, Jupitmedia's president and COO said that third quarter revenues from Getty were lower than expected due to the fact that the company had already de-emphasized the remaining Jupiter brands resulting in decreased sales volume. Nevertheless he said the company expects $1.5 million in fourth quarter income from Getty. This revenue will come from one month of Thinkstock that was dropped on November 1st, and primarily from PictureArts that will be dropped December 15th.
In the last year PictureArts received 47% of its revenue from Getty, or approximately $2.6 million per quarter. One million a quarter is not something any company wants to lose, but not impossible to make up either.
Meckler claims that his company has already replaced the income lost when Getty terminated its agreement to distribute Comstock images earlier this year. Part of this is because by licensing images directly the company now gets to keep 100% of the sale. It is believed that in the case of Comstock and Thinkstock, Getty was keeping 80% of the revenue generated from sales of these images. Thus, if JupiterImages could license 1/5th the number of images directly to customers compared to the number Getty was licensing they would still earn the same amount because the company gets to keep 100% of the fee.
JupiterImages has also recently expanded its distribution network of Comstock images by placing them on Corbis and Adobe. While these companies probably take at least 50% of the revenue as their selling fee that is a lot better than 80%.
Meckler has told analysts to expect a "financially uneven first half of 2006", but he believes that by the second half of 2006 they can make up for any loss of Picture Arts revenue from Getty in the same way they have made up for the loss of Comstock revenue.
In October JupiterImages "soft launched" a new web site that brings virtually all the brands they represent onto one portal. At the moment this site has 162,692 RM images, 371,153 RF images and 58,744 Value RF images that are basically a selected group of images from their subscription brands. It is interesting to note that they have heavily edited the imagery from their value brands, probably offering only those that have been most frequently downloaded by their users and greatly increasing the overall quality look of this site compared to Photos.com, AbleStock and Liquid Library. On the other hand for those customers interested in the greater depth of imagery that these value sites provide they can still find the images by going directly to sites which continue to function.
Unlike many sites that only have one thumbnail option this new site allows users to choose between three different sized thumbnails. Another of the site's unique features is that whenever a cursor moves over a thumbnail a mid-sized version of the thumbnail pops up. This should be a significant time-saver for researchers as in many cases it will be unnecessary for open a preview page in order to make a decision about the usability of a particular image.
Currently there are 41 different brands represented on www.jupiterimages.com. Some are owned by Jupiter and others are third party brands that Jupiter represents. Meckler says they will add additional independent collections within 40 to 50 days.
Meckler has also indicated that the site is in a testing stage and that investors will probably notice weekly tweeking between now and about March of 2006 when the company expects to begin launching a major promotional campaign.
Speaking of promotion, Jupiter owns two of the publications - Dynamic Graphics and Step Inside Design - that are most widely referred to by graphic designers. To promote their new web site they will place extensive "house ads" in these publications.