It's been said that a Monet painting looks good from afar, but up close it looks like a jumbled mess. The opposite appears true for Getty Images. At first glance, the company's fourth-quarter earnings report seemed grim. Earnings of 50 cents per share fell six cents short of Wall Street's expectations -- marking the fourth consecutive quarter that Getty has missed analysts' estimates. Moreover, earnings slipped nearly 30% from the same period a year earlier.
But investors were unfazed. On January 30, the first trading day after the earnings announcement, Getty's stock (symbol GYI) jumped 9%. It gained another 2% on January 31, closing at $49.27. Why such optimism? On further inspection, Getty's fourth-quarter results revealed that the company ended an otherwise disappointing year on a high note.
It has been a rough year for the Seattle company, which manages a database of photographs and other images that are licensed for use by advertising agencies, Web sites, magazines, newspapers, and film producers. Getty is facing challenges on several fronts. The print industry is slowing, sparking changes in the ways clients use stock images. Meanwhile, to fend off competition from rivals that employ new pricing models, the company has launched restructuring plans. Some analysts remain skeptical "until the company can string together several quarters of stable revenue growth and consistent earnings per share results," as one of them, Christa Sober Quarles of Thomas Weisel Partners, wrote in a note to clients. She maintains a "market weight," or neutral, rating on the stock.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But, put in perspective, these obstacles aren't as dire as they seem, say Bear Stearns analysts James Ballan and Ryan Casey. "Although long-term challenges remain, we believe the company's fourth-quarter results have proven these concerns to be unfounded," they told clients. The pair upgraded Getty's stock and gave it a year-end price target of $60.
Getty announced in October that it was laying off several dozen employees and hiring others with different skills, as well as consolidating office space. Excluding the restructuring costs associated with those moves, the company earned 66 cents a share during the fourth quarter, compared with 65 cents a year earlier. What's more, Getty's sales rose 10% in the fourth quarter, to $203.5 million, and also rose 10% for the year, to $807 million. Getty also generated free cash flow last year of $269 million, $208 million of which it used for share repurchases.
Ballan and Casey expect Getty to earn $2.62 per share this year and $2.98 in 2008. That gives it a price-earnings ratio of 19 on this year's earnings and 16 on next year's. These estimates are actually on the conservative side, the two say. "We believe this conservative case is enough to illustrate a compelling investment opportunity at current prices." The analysts think Getty's revenue will grow 5% to 6% annually through 2012, and that earnings per share will grow 12% to 13% a year. (Getty itself says it expects 2007 revenue growth to be in the mid-single-digit range, and earnings growth in the high-single digits.)
Several factors should drive Getty's performance in the coming year. The company remains one of the biggest players among image distributors -- and that's a good thing, because ad agencies and other clients don't want to sort through different databases looking for the photos they want to buy. Getty is also expanding its reach overseas, the source of more than half of its sales. That part of the business is growing rapidly, as text-heavy advertisements are disappearing in such emerging nations as China and India, and newspapers are beginning to incorporate more photographs. The Getty unit responsible for licensing images for film is also growing at a healthy pace.
Also worth noting is that San Francisco-based investment firm Blum Capital Partners has taken a 5% stake in Getty Images, according to a January 29 regulatory filing. The firm has a history of getting involved in the operations of companies it invests in.
-
What Is a Qualified Charitable Distribution (QCD)?Tax Breaks A QCD can lower your tax bill while meeting your charitable giving goals in retirement. Here’s how.
-
Embracing Generative AI for Financial SuccessGenerative AI has the potential to reshape how we approach learning about and managing our personal finances.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are SayingFederal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in FocusNvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
-
Stock Market Today: Dow Hits New Record Closing HighThe Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
