Art Media Update

Skate's recently published its Market Notes post on three European art media firms, including Artprice, artnet and Artnews. According to the Market Notes post, the three firms have seen a rise of 6.7% in sales over the same period of 2014.  The post notes that Artprice and Artnews saw growth while artnet "reported the worst revenue growth among its peers and declining profitability."

Skate's reports

Art media business is clearly on the rise with the listed trio making together $16.6 million in sales or 6.7% more than for the same period in 2014 – Artnews S.A. (the owner of Skate’s) was by far the growth leader with a 25% revenue increase. The market seems to like art media stocks valuing them on average 4 x annualized sales (the combined market cap of the three listed firms was $139.3 million as of August 14, 2015), however the valuations are very different in each case.

Artprice S.A. is the most richly valued art media stock that currently trades at 18 x its projected 2015 revenues. In its financial report published on Thursday, the French firm known for lengthy and belletristic disclosures which are very light on financial data and facts, highlighted a 30.2% revenue growth in EUR (from EUR 2.28m in 1H 2014 to EUR 2.97m in 1H 2015), but given significant depreciation of EUR to USD this translated in just 6% revenue increase in US$ terms.

Warsaw listed Artnews S.A. achieved 25% growth in US$ terms for the same period (unlike Artprice that operates from European headquarters in Lyon, France, Artnews maintains two offices, one in New York and one in Warsaw, Poland, with most of the sales generated in the USA). This helped Artnews S.A. overtake Artprice S.A. as the world’s 2nd largest listed art media business by revenue (and that is before Artnews consolidation with BMP art media assets, announced on July 29, 2015). Also, in spite of artnet.com AG litigation travails in France and overall decline in price database business, Berlin based artnet.com AG kept its advantage over Artprice S.A. in terms of revenues from the price database business.

Artnet.com AG reported the worst revenue growth among the peers and declining profitability, in contrast to Artnews’s move to profitability from loss last year. Artprice does not publish any of the profitability metrics. Artnet.com AG lost revenue in three out of four of its business segments with advertising business being the only source of growth for the firm (that story is further detailed below). Decline in revenues (in US$ terms) from price database and auctions segments is particularly worrisome pointing to decline of the only sustainably profitable price database business and hopeless state of affairs in the auction segment (against triple digit growth numbers of major competitors like Auctionata and paddle8). According to artnet.com AG disclosure of contribution margins, Price Database segment contributed by $0.44 million or 18.5% less to EBIT of the firm in 1H 2015 than a year earlier, with that being one of the primary reasons for artnet.com AG EBIT 45.7% decline for the period.

This poor performance is not a surprise and was fully priced in – artnet.com AG is traded at the worst multiples to its revenues and EBIT among the peers, and its share price lost over 50% earlier this year. Ironically, artnet.com AG share price decline also hit its rival Artnews – according to Artnews S.A. own disclosure detailing non-cash charges in its 6 months P&L, “The biggest source of those non-cash losses (PLN 2.96 million or US$ 0.8 million) was the decline in value of Artnews S.A.’s strategic investment in its primary competitor, Germany-listed artnet.com AG, whose share prices dropped in the first half of 2015.”

The three European art media firms have very different strategies and 6 months numbers clearly portray the difference. Artprice is basically doing nothing other than milking its price database. Valued at $120 million in market cap, Artprice is a gleaming example of what artnet.com AG valuation could have been, if the firm had avoided forays in loss making businesses such as art auctions and news (details further below). One can only guess how long the artnet / artprice oligopoly will continue, but even with stagnating revenues the business operates at 50.6% EBIT margin in artnet.com AG case with at least similar profitability estimated for Artprice.

Artnews is pushing for the consolidation and scale in pure play art media business – this is a high-risk, high leverage strategy but so far it is paying off. Artnews S.A. reported 18% EBITDA margin on its restructured and consolidated media business (that currently includes ARTnews, Skate’s and Art & Business brands), with $0.47m EBIT for the first 6 months of 2015 – this is four times higher than what artnet.com AG reported. As a result Artnews being a smaller business with significant expenses of the print operations, reported a far superior EBIT margin than pure digital artnet.com AG for the first 6 months of 2015: 12.2% EBIT margin for Artnews versus 1.3% EBIT margin for artnet.com AG.

The merger with BMP art media properties7 scheduled for approval on September 22 by Artnews shareholders meeting, should allow Artnews to come almost on a par with artnet.com AG in terms of digital audience and to eclipse media reach of artnet when Artnews and Art in America print audience is taken into consideration. Put it in the context of Artnews current history starting in spring of 2014, this is remarkable leap forward for Artnews, which also remains one of the largest shareholders in artnet.com AG.

Artnet.com AG, while stubbornly committed to burn shareholders money on hopeless online auctions business, had its successes this year. Not only the firm remains the largest art media business in terms of digital audience and revenue, it also managed to significantly improve profitability of its Gallery Network business in spite of mounting competition from Artsy. While the revenue from the Gallery segment shrunk by 12.7% for the first six months of 2015 compared to the same period of 2014, its contribution to EBIT increased by 14.4% to $1.8 million coming almost on par with Price Database contribution of $1.9 million for the same period.

The biggest success artnet.com AG had this year so far was with advertising sales that doubled for the period to $1.6 million, largely due to advertising sales into price database and Gallery Network properties. Inasmuch artnet these days is highly recognized for its tabloid-like artnet news reporting, ad sales into artnet news (that grown from $133k in 1H 2014 to $716k in 1H 2015) contributed to less than half of artnet.com AG advertising sales for the period, with Artnet News segment being the biggest loss maker for the group with $0.4 million in losses generated in the first six months of the year.

Source: Skate's