While all the buzz in the art market is about the unexpectedly swift recovery of art prices, the market for the art stocks tracked by Skate’s Art Stocks Index does not reflect this excitement. Closing at 120.5 last year, the Skate’s Art Stocks Index stood at 121.7 as of February 15, with Sotheby’s happy share price performance overshadowed by a decline among the other constituent stocks. Perhaps the biggest worry today is the segment for publicly-traded art market information providers.
Skate’s published an in-depth report on artnet back in November. We expressed even greater concern when Artfact completed a private equity round in December (now called Auction Holdings) stepping up competition for the online art auction marketplace business with artnet.
Our focus this month is Artprice. The firm has suffered a double blow — poor financial performance in 2009 coupled with a massive and litigious dispute with the auction industry heavyweight Christie’s. Artprice now visibly underperforms Skate’s Art Stocks Index, closing at USD 11.19, which is down 15% from last year’s closing price of USD 13.16 per share (Artprice is traded in euros but here we use converted dollar values to offer a comparison to Skate’s Art Stocks Index, which is based on USD share price values). This price, however, stands well above the EUR 6 per share recorded in early October, before the Artprice share price unexpectedly and in a few short weeks more than doubled in value over thin volume. This week Artprice tested the EUR 8 price support level and we anticipate Artprice shares diving below that level and migrating quickly toward EUR 7 or even less as markets digest firm’s financial disclosure and weigh its chances of successfully thwarting Christie’s lawsuit.
2009 Financial Results
Artprice is traditionally very laconic with its financial disclosure — here it is in full.
The headline number for this disclosure would be a 15.4% drop in annual sales to just EUR 4.86 million. It seems as though Artprice managed to slow the rate of decline to a mere 2.8% drop in sales in the fourth quarter of 2009. The firm is telling us that its January 2010 sales were up by 15.3% over the same period of 2009 but we will see if this trend reversal continues when Artprice releases its Q1 financial results in May of this year. In any event, with these numbers Artprice is roughly half the size of its major rival, artnet, in terms of revenue. In terms of market capitalization, its value continues to be double that of artnet’s. Hence, we expect a further significant negative correction for Artprice share price in immediate future.
As if this downward pressure on Artprice’s shares driven by poor financial performance were not enough, Christie’s is contributing further to the company’s woes. On February 9, Artprice announced that it had become engaged in a major legal battle with Christie’s over its wholesale reproduction of the auction house’s catalogues.
According to Artprice’s press release – aptly termed “long and convoluted” by The Art Market Monitor – “Christie’s has decided – 48 hours before the closure of the trial court’s (first instance) pre-hearing preliminary proceedings (February 2010) and nearly two years after the beginning of the case which has not been subject to a court-ordered appraisal – to raise its claim from 2 million euros to 63 millions euros without any shadow of a new or serious increase in motive.”
EUR 63 million is a lot of money, especially considering that Artprice’s total revenues in 2009 were just under EUR 4.9 million. The company’s total market capitalization as of February 15, 2010 was just over EUR 50 million and falling. Suffice it to say, Artprice is quite likely finished as stand alone operation if Christie’s succeeds in obtaining a judgment for the full amount.
Though the wild numbers above and the long-winded nature of Thierry Ehrmann’s commentary make for the flashiest news, the truly interesting part comes near the bottom of Artprice’s statement, which we quote at length:
As a result of the global economic and financial crisis, nearly all the auction companies around the world are moving closer to Artprice (which has been working in close collaboration with them since 1987) in order to organise their auctions online as soon as the Directive is adopted, thanks to Artprice’s standardised marketplace and its 1.3 million members. Artprice owns the largest “Fine Art” client portfolio in the world. For the art market, these client behaviour databases constitute the basis for the success of catalogued auction sales.
Christie’s and its owners Francois Pinault and Artemis have understood that the Services Directive will allow the 3,600 auction houses and 7,400 valuers around the world to access Artprice’s 1.3 million clients through its standardised marketplace protected by sui generis law at an infinitely smaller cost than the current premium rates (36% to 37.5% – source: CVV). The old lady from the Victorian era should wake up to the internet revolution rather than seeking to engage in bogus conflicts.
What Artprice is essentially arguing is that Christie’s, through its lawsuit, is attempting to hinder the movement of the world’s minor auction houses to online auction platforms such as those being developed by Artprice and other companies – in effect stifling competition, or, as the press release’s title accuses, making “another vain attempt to take control of Artprice at a lower price.”
Without commenting on the merits of Christie’s lawsuit or the accusations made by Artprice regarding the auction house’s motives, Skate’s would like to note that given the rapid change in mood among investors following the publication of Artprice’s less-than-stellar 9M financial statement in November 2009, the current legal standoff will serve as yet another trouble for a company that has been struggling for quite some time with the more fundamental business of turning a profit for its shareholders. While the old lady from the Victorian era should perhaps wake up to the challenges posed by online trading, the self-proclaimed leader of the art price database business ought to consider waking up to the response of investors to the realities of its bottom line (Artprice, by the way, does not disclose its profits (losses) and does not publish its balance sheet).
Skate’s also notes that Christie’s litigation creates an important legal precedent that is creating a threat to existence of Artprice major rival artnet and smaller competitors like Artinfo, MutualArt, Artinvestment.ru and Artron.net.