Artprice’s 9M 2009 Financials Disappoint, Company Significantly Weaker vis-à-vis artnet

November 19, 2009

Artprice, currently the largest listed art data company in terms of market capitalization, recently published its nine months 2009 financial statements. Unlike artnet, which published its accounts several weeks ago, Artprice is suffering in the core business of art price data.

Given that Artprice only reports sales figures – for some reason using a structure where 95% of all revenue is captured by just one segment called “Internet” – we can only compare and analyze the firm’s topline performance. In the first nine months of 2009, Artprice’s sales totaled EUR 3,156,000 (versus EUR 9,242,000 for artnet for the same period). This marks a 21% decline over the same period of 2008 (artnet achieved a 4.3% increase in sales for the same period of time).

Even as Artprice might have a leaner cost structure with less staff, no massive publishing program, no foray into online auctions and operations based only in Lyon (artnet runs two offices in Berlin and New York), Skate’s assumes that the quality of Artprice’s products and services has been significantly damaged due to an inability to invest in better data management technologies. Artprice was hit seriously by a DDoS attack this last summer and now apparently economizes even on such areas as investor relations (e.g., by not offering management discussion and analysis to its financial results and limiting its disclosure to French). Skate’s therefore believes that Artprice currently operates at the brink of profitability and is becoming increasingly vulnerable to both international competition (artnet and, to a lesser extent, MutualArt and Artfacts are the major threats) and regional high-growth art market data providers (e.g., in Russia and in China).

The firm is strongly dominated by the charisma of Thierry Ehrmann, who dedicated most of his comments in the financial statements to a focus on various legislative initiatives in France and the EU, which are meant to even further liberalize and support the online art trade. He offered nothing in the way of comment on Artprice’s profitability, debt and cash positions.

Reflecting on Artprice’s declining revenues, its strong financial underperformance when compared to its major peer (artnet) and its lackluster disclosure, the recent surge in the company’s share price is hardly justified by Artprice’s apparent financial condition. It is obvious that Artprice is turning into a high-risk company for its minority shareholders, and given the company’s substandard financial reporting (published exclusively in French), we can only assume that Artprice shows little interest in attracting investors outside France – which is curious given the company’s multilingual website and apparent interest in maintaining a global client base.

In light of Artprice’s recent statements and our above analysis, Skate’s has therefore decided to reduce the target price for Artprice to EUR 5 per share.

Exhibit 1 – Artprice’s 9M 2009 Financial Disclosure

Source:, translation provided by Skate’s Art Market Research.

Exhibit 2 – Artprice Year-to-date Share Performance vs artnet and Skate’s Art Stocks Index

Source: Skate’s Art Market Research.

Positive Returns for Repeat Sales at Sotheby’s

November 12, 2009

Last night, Sotheby’s was the scene of yet another exciting auction where sales far exceeded estimates – total sales of USD 134.4 million versus a high estimate of USD 97.7 million. Although not quite the blockbuster that last week’s sale of Impressionist & Modern art was, with only two unsold lots, Sotheby’s sale of contemporary art was by all accounts a success, especially in comparison to Christie’s similar sale on Tuesday evening which saw several high-profile works, including ones by Basquiat and Warhol, go unsold.

Last night’s auction saw three repeat sales of works entering Skate’s Top 1000, all of which brought positive returns for their sellers. Jasper Johns’ Gray Numbers, which sold for USD 8,706,500 (above the high estimate of USD 7 million) achieved a modest average annualized rate of return (ERR) of 6.38% based on its November 2003 sale at Christie’s for USD 5,271,500. Jean Dubuffet’s Trinité-Champs-Elysées sold for USD 6,130,500, just above the high estimate of USD 6 million. Its very modest ERR stood at 1.14%, which could actually be seen as quite significant considering the original purchase of the work took place during early period of the contemporary art market boom in May 2006.

The biggest news-maker of them all was Andy Warhol’s 200 One Dollar Bills, which sold for well over three times the high estimate (USD 12 million) for USD 43,762,500. With an original sale price of USD 385,000, last night’s sale translates into an ERR of 22.15%. In our issue of Skate’s Market Notes next week, we will publish a comprehensive look at how Andy Warhol’s market position continues to evolve as the art market regains its footing.

Japan Increasing Scrutiny of Art Funds, Among Others

November 11, 2009

Those with an interest in Japanese alternative assets might be interested to know that the country’s Securities and Exchange Surveillance Commission (SESC) has begun to step up scrutiny of art funds, among others, in an attempt to protect investors from potentially large losses. Given that contemporary art is the easiest to bet on due to the highest potential valuation step-ups, it will be interesting to see what effect, if any, increased scrutiny of art funds will have on the market for contemporary works. Just as interesting will be whether other governments will seek to follow in Japan’s footsteps.

For the full story, read Takahiko Hyuga’s “Japan Broadens Financial Scrutiny, Targets Art, Racehorse Funds” on

artnet’s Nine Months’ 2009 Report: Core Business Remains Strong, Other Sectors Push Company into Red; Cash Position Down by 25% for the Period

November 10, 2009

On Friday, October 30, artnet (Frankfurt: AYD) released its nine months’ 2009 financial statements. The message from CEO Hans Neuendorf was somber – “given the present economic climate, we believe a net loss for the fiscal 2009 is inevitable.” In fact, the loss is already there based on the nine months report, and apparently artnet’s management does not expect the fourth quarter to compensate for the losses incurred so far this year.

The change in fortune is noteworthy – in the first nine months of 2008, artnet made a net profit of USD 2 million on sales of USD 13.5 million. For the same period of 2009, the company went in the red by USD 200,000 on declining sales of USD 12.6 million. When we profiled artnet in our April 2009 newsletter, we noted that the firm had elected to jump on three parallel investment projects in the midst of a market decline. Very much like Gagosian Gallery, artnet chose to expand in all directions when most of the players in the art industry were licking their wounds and trying to keep their ships afloat. This bold contrarian strategy centered on expanding into France, building up a decorative arts price database and making a big bet on online auctions. The strategy led to an 11% increase in personnel and a significant diversion of management’s time to the auctions business segment. So far, this has generated USD 735,497 in sales, or just under 6% of artnet’s total revenues. When we analyzed artnet’s 2008 year-end financial statements this past April, we stated that the online auctions segment must eventually bring 10% or more of total revenue in order to be considered a success.

We believe Q4 2009 remains crucial when it comes to determining whether the online auctions strategy is paying off (i.e., compensating for shrinking advertising revenue and creating a new growth opportunity for artnet). Aside from our concern about profitability (see below), we will withhold judgment on the success or failure of the online auctions expansion until artnet publishes its full-year 2009 financial report.

It is imperative that artnet either sees success with its expansion or takes action to adjust its business model. Perhaps, the quiet period after the 2009/2010 auction season (summer 2010) will be the ideal decision time. The reason for this urgency is that as artnet has experimented with expansion, the firm’s business model has changed from that of a modestly growing cash cow to one of a challenged firm in transition sandwiched between negative cash flow from operations (negative USD 500,000 in nine months of 2009 versus positive USD 700,000 for the same period in 2008) and a quickly melting cash cushion – artnet’s cash position has fallen from USD 4.1 million to USD 3 million (by 25%) in just nine months. Another USD 500,000 in cash has been consumed by investment activities.

This burn rate clearly made artnet revisit the scale of its investment plans – its capital expenditure program was reduced by almost 50% over the same period of 2008.

So far, artnet remains a strong going concern. It has no leverage and enjoys strong cash flows from its core price database and gallery network offering. With USD 3 million in cash, the firm can afford to experiment with new growth opportunities for some time, although its segment reporting does reveal some troubling signs.

As we can see on page 16 of artnet’s disclosure, three out of its four business segments are profitable, with the Price Database even increasing its pre-tax profitability both in absolute terms (it grew by 26% to EUR 950,000 for nine months of 2009) and relative terms (growth from a 21.3% to 26.3% margin for nine months of 2009 compared to the same period of 2008). It is the so-called “Other” segment that remains a source of growing concern. This segment, which includes all of artnet’s magazines and online auctions, generated EUR 2.4 million in losses in the first nine months of the year, exceeding combined profitability of the three core segments and plunging artnet into a net loss for the period. This loss widened by 50% from the same period of 2008, which creates a rather obvious dilemma for the company. artnet’s management must either find a way to reduce or ideally eliminate this loss through increased online auction revenues and rebuilding the advertising base for its magazines, or it may have to unwind some, perhaps even most of its “Other” segment in 2010.

Alberto Giacometti’s L’homme qui chavire Achieves -3.42% ERR

November 6, 2009

In our November issue of Skate’s Art Industry Investment Report, we predicted a major price correction for Swiss sculptor Alberto Giacometti with the repeat sale of his work L’homme qui chavire at Sotheby’s on November 4. The work had sold during the height of the art market boom on May 9, 2007 for USD 18.5 million, and by all accounts the seller this time around was set to suffer a major loss on the resale. Sotheby’s high estimate prior to the auction was USD 12 million. With a premium price of USD 19,346,500, the work suffered only a minor loss with its -3.42% average annualized rate of return (ERR). Given historically weak returns for works of art priced at this level, the initial purchase during a market boom and an economy still ravaged by last year’s financial crisis, Wednesday’s sale of L’homme qui chavire seems like quite an achievement.

Previously ranked at #166 in Skate’s Top 1000, L’homme qui chavire now holds the #152 position in the ranking.

As we mentioned yesterday, the results of the entire sale Wednesday evening were a shock for everyone, including Sotheby’s, and were undoubtedly the major reason behind the USD 2+ surge in the company’s shares yesterday. One major trend to watch the rest of this fall and next spring is whether Impressionist and Modern art in general is receiving an upward correction after several years of dominance by Post-War and Contemporary art. While Christie’s auction on Tuesday was largely considered a flop given the high number of unsold works, Sotheby’s sales results were really quite spectacular. Stay tuned for coverage of next week’s sales of Post-War and Contemporary art at both auction houses.

Sotheby’s Share Price Surges After Auctions – Apparent Advantage Over Christie’s

November 5, 2009

As of 1.00pm today, Sotheby’s shares were trading up more than USD 2 in an apparent attempt to come within arms’ reach of their 52-week high of USD 19.48. The surge comes amidst general strong performance in U.S. stocks.

The jump in the company’s shares is undoubtedly the result of the hugely successful auction of Impressionist and Modern Art last night, which exceeded the auction house’s high estimate by nearly USD 20 million (total sales were USD 181.7 million versus a high estimate of USD 163 million). As many commentators have already noted, the auction stands in painfully stark contrast to a similar sale by Christie’s on Tuesday night where a high-profile work by Picasso failed to sell.

What will be quite interesting to watch is whether the same difference will be seen next week when both auction houses host high-profile sales of Post-War and Contemporary Art. Given global buying trends favoring more time-tested art, especially in Asia, we would not be surprised if the sales were relatively weak at both firms. As shown by last night’s Sotheby’s sale, the market is definitely back for Impressionist and Modern works.

It also remains to be seen whether investors will find continued reason to drive up Sotheby’s share price and test the 52-week high or whether likely weaker sales of Contemporary art next week (again, relative to last night’s auction) will mean the end of this current rally.

Collectors Universe Outstrips Skate’s Art Stocks

November 2, 2009

Collectors Universe (NASDAQ: CLCT), one of the twelve companies listed in Skate’s Art Stocks Index, was one of the best performers in October, gaining 33% and ending the month at $7.48 per share, up 155% on a year-to-date basis.

A leading provider of authentication and grading services to dealers and collectors of high value collectibles, CLCT was valued at $63 million as of October 30, 2009, which makes it the fourth largest company among Skate’s Art Stocks in terms of market capitalization.

The upward correction to the CLCT share price was caused by overall perceived improvements in the collectibles market, as well as CLCT’s own announcement of resumed dividend payments and an upcoming shareholders meeting.

The announcement of a $0.25 quarterly cash dividend with a November 10, 2009 ex-date (stockholders of record as of this date) implied a 17% (sic!) annualized dividend yield at the closing CLCT share price on October 23, the last trading day before the CLCT board of directors approved the new dividend policy on October 26. This announcement sent the CLCT share price into an approximate 25% rally during the last week of October, albeit on a small volume.

The timing for the announcement was also interesting. Almost simultaneously with the new dividend policy announcement, CLCT called its annual shareholders meeting for December 8, 2009, although investors who bought the stock during last week of the October rally will not be eligible to vote, as the ex-date for the meeting was set for October 20, 2009. The annual meeting is not expected to bring any surprises, as it has only two items on the agenda – neither of which brings any change. Shareholders will be asked to reconfirm the mandates for the existing board (no new names in the seven-member board) and of the auditor (same non-Big 4 name).

Skate’s believes there will be no lasting upside effect from this dividend announcement. At a P/E of 57, CLCT is very close to our target price of $8 and is likely to drop by more than $0.25 after the ex-date of November 10. In the absence of other news, we see the stock dropping back below $7 in November, as no fundamental new economics can justify current highs. However, having a $0.25 cash dividend budgeted for the coming year should provide CLCT with a welcome support line at $6 per share (which we would expect to hold even if market benchmarks head south moderately) – the level CLCT was not even dreaming about when it ran a share buy-back program earlier this year at maximum offer price of $5.40 per share.

Having a market capitalization exceeding $50 million and remaining unleveraged puts Collectors Universe in a great position in terms of merger and acquisition targets in adjacent art market fields. While not all of CLCT’s prior deals were successes, the company remains the stock to watch. We maintain our target price of $8 for CLCT in the hope that some of interesting M&A proposals materialize shortly after the December shareholders meeting.

Exhibit 1 – Collectors Universe (CLCT) vs. Skate’s Art Stock Index (October 2008 – October 2009)

November 2 - Skate's Market Notes

Click here for the original story on Skate’s website


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