We have covered Getty Images (NYSE:GYI) about how they are a business at risk, how they are going to lose market share, how their margins are going to compress almost routinely into the future, and how they are going to be under direct attack from hundreds or more lean start-ups and early-stage stock photo and media companies. Today, shares hit a multi-year low. We still are reviewing whether or not this is going to become a value stock or a value trap.
Getty, and Bill Gates’ Corbis, has perhaps the easiest business to attack with a wiki-model business out of anyone out there. I have estimated that their model could be attacked by anyone employing a wiki-model in a Web 2.0 world for $20,000.00 with operating capital to last 6-months. An industry contact Augustine Fou, CEO of PictureSandbox.com says this can be done far less: "Anyone with $1,000 can build a web 2.0 service — something as simple as a meta search engine for photos which searches across every available microstock collection. Helping the potential buyer more quickly and easily find and license a photo means that purchase will occur outside walls of traditional stock houses."
Today Getty’s stock didn’t just hit a 52-week low. At $30.10 it has now given up all the stock gains back to early 2003. In early 2003 this went from a stock in the high-$20’s and low-$30’s rapidly up to $40+, then $50+ by December 2003, and it reached the $70’s, $80’s, and even the $90’s before the end of 2005. There is less and less war coverage now and the coverage that requires photos can be had for far less. But the main area of attack is the non-copyright (royalty-free) event photos in what is becoming more and more royalty-free. A high resolution picture of a bear eating a salmon just isn’t worth what it was even in 2005. As media conglomerates merge it creates fewer clients, and any new media start-up out there knows it can get stock photos and digital audio or video media for free or very close to free.
Getty won’t implode, or at least we are fairly sure it has a place in the future. We sent out our Special Situation Investing Newsletter in early May when Getty Images stock was just above $50.00 with a $36.00 to $38.00 target price by early 2008. We even gave the options strategy for it as the maximized way to limit risk. Early in August we sent out an alert after it hit our downward target. It has continued its slide, even worse than we thought it would. At some point we feel that this could become an incredible value stock as long as it can stay profitable, but we aren’t about to go out with any call like that this soon.
We are constantly looking at special situation investing opportunities out there for our newsletter subscribers. We won’t be putting Getty on any reverse list for any private equity or management buyouts in the immediate future, but we’ll be issuing for more and more special situation opportunities that have the same criteria. Some special situations are buyouts, some are break-ups, some are pending de-mergers wrecking an industry, and others are special situations for other reasons.
Jon C. Ogg
August 15, 2007
Jon Ogg can be reached at firstname.lastname@example.org; he does not own securities in the companies he covers.