A few weeks ago, we talked about challenges facing Getty Images (NYSE: GYI), the leading supplier of Stock Photography. At Getty's current valuation, trading at over 30 times 06 earnings, it's being thought of as having a monopoly. With growth estimated at 25% over the next several years, analysts are assuming their position is unassailable.
This weekend, Barron's suggested that it may be wise for investors to take some profits in the company:
STOCK-IMAGERY OUTFIT GETTY IMAGES RECENTLY POSTED nearly picture-perfect second-quarter results, and demand for its photos from Hurricane Katrina and other major events should remain robust. Investors get the picture. They've bid up Getty 55% in the past year; late last week, it was around 83. Further gains might be limited, however.
Getty has been on a tear for two years, soaring 110% from around 40 to 85, and, as the world's leading provider of stock and editorial photography, has generally commanded a rich valuation. Barron's profiled the Seattle company ("Pretty as a Picture," Feb. 28,) when the stock was around 70 and fetching 33 times then-current earnings estimates. We argued, rightly, that Getty's market-share-gobbling initiatives would propel it higher. SunTrust Robinson Humphrey analyst Christopher Rowen sees Getty Images eventually hitting 92.
Getty's fundamentals remain strong, with net income jumping 36% amid accelerating volume growth. The company also continues to project 25% long-term earnings growth. However, having been rewarded with a 20% return, we now regard the increasingly lofty price-to-earnings ratio -- 37 times the Street's '05 earnings view of $2.25 a share -- more cautiously and think most investors might want to follow the lead of some Getty insiders by taking profits and adding to positions on any price pullbacks.
But perhaps it's time for aggressive investors to consider shorting Getty, as the negatives are starting to pile up.
- It is getting expensive, though overvaluation, as we've seen, isn't enough to take down a stock.
- They are riding the celebrity bubble. We've talked about this before, but the celebrity industry is huge right now, with new magazines being published every month, all redundantly spitting the same gossip and using, roughly, the same BradGelina pictures. The Stalwart thinks this is bound to crash, and that won't help Getty
- The profits in this industry are big, and the sharks are smelling opportunity. JupiterMedia is getting into the game, as are some other well-capitalized players. Here's an article on a company looking to build the Ebay of stock photography. Here's another piece about a different company raising Venture Capital money. Actually, a read through the blog Stock Photo Talk reveals that this is a highly dynamic and increasingly competitive industry. The barriers to entry just aren't there to support the idea that Getty is a monopoly.
Obviously, making a move on Getty will require a lot of due diligence, but it seems like there might be opportunities here.
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