Getty While It's Good

Getty Images (NYSE: GYI), the leading supplier of stock photography, has seen in shares go on an awesome run in the last year, and its shares are up nearly 9-fold over the last four years.  Analysts project continued strong growth in earnings, which is why the stock trades at over 30 times, fiscal year '06 earnings.

But Jim Pickerell who is an analyst of the stock-photo industry (I'll save my rant about over-specialization of analysts for another time), thinks that Getty faces serious challenges going forward, and that strong growth is not at all guaranteed.  His case:

• The market is not growing.  Getty has been growing by gobbling up market-share but at 40% of the market, he believes they are close to topping out.
• Getty has been adding images at a furious pace to offset declines in revenue per image.  Average revenue per image (ARPI) has gone from $730 to $520 over the last two years.
• Pickerell acknowledges their strengths which are best platform (a very easy to use website), best sales staff, and best content, but notes that competitors are strengthening fast. These include Adobe Stock Photography, Corbis, and upstart entrant Jupiter Media, which has a strong internet presence.
• Getty has a bad relationship with it's image suppliers,who may find a better deal dropping Getty altogether, and selling through the competitors.

If you currently are an owner of Getty shares, it's worth reading through the entire piece.

On the flipside, shares of Jupiter Media (NASD: JUPM) could be attractive, trading at roughly half Getty's valuation.  From Forbes.com:

Piper Jaffray said shares of Jupitermedia     are oversold and said "we would be aggressive buyers at current levels." A provider of images and online media resources, Jupitermedia has seen shares fall off about 30% since reporting "an essentially in-line second quarter" earlier this month.

Piper Jaffray said "the selling is now overdone and that shares offer a very attractive entry point." Jupitermedia shares are trading at a 2006 enterprise value/earnings before interest, taxes, depreciation and amortization of 10 times (excluding the recent sale of the events business), "which represents a 40% valuation discount to its closest comparative, Getty Images.

The firm has a $25 price target, compared to the $16 it trades at currently.

 

Comments

[The Other Stalwart]

I've always been shocked at how much Getty images cost companies. And strangely its usually the case that you are obligated to use Getty stock photos. To do otherwise would of course be unprofessional.. Perhaps its quality control on the part of large organizations, but at an average price of $520 per image it still seems like a hefty price to pay.

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