Sticking to its traditional reporting schedule, Artnet released its 1Q 2011 management report on April 29. While the company’s total revenue increased by 10% in euro terms (up to EUR 3,491,591 from EUR 3,178,513 in the first quarter of 2010), this increase was not enough to offset increasing costs, which meant that Artnet realized a EUR 70,733 net loss against a EUR 77,318 net profit for the same period last year.
Artnet’s loss for the quarter comes following the company’s report of a net profit of EUR 153,000 for all of 2010 (see Skate’s Market Notes #36, April 6, 2011). In its opening analysis to the 1Q 2011 report, the company states that its increased revenue in the first quarter was “offset by additional costs incurred by the Group for product development, consulting and payroll increases.” Furthermore, Artnet notes, “The Group continues to work with Simon-Kuchner & Partners to review pricing of its products and services.”
Looking at Artnet’s segment reporting, revenue from artnet Galleries was essentially flat at EUR 1,242,866 for 1Q 2011 vs. EUR 1,242,890 for the same period of 2010, although increased costs brought profit for this segment down significantly from EUR 73,103 to EUR 50,230. The artnet Price Database performed similarly with a slight growth in revenue hit by increased costs, thus resulting in a segment profit of EUR 194,350 that was down substantially from the EUR 360,581 profit for 1Q 2010. Such was also the case with the artnet Advertising segment, which saw profits shrink to just EUR 12,036 from EUR 69,741 in the same period last year, despite the hefty increase in revenue from EUR 315,955 to EUR 398,200.
artnet Auctions posted a modest EUR 85,602 loss for the first quarter, although revenue was up significantly from EUR 413,293 in 1Q 2010 to EUR 614,663 for the first quarter of this year, which indicates that the company is well on its way to making Auctions a profitable segment. artnet Magazine was listed as a new segment for the first quarter after previously being “considered primarily a marketing tool supporting the Group’s business activities”; it posted a EUR 224,925 loss on revenue of EUR 18,273, although Artnet states that artnet Magazine “will be developed into a full-fledged business.”
As the overall economy and the art market both continue their recovery, Artnet will need to be vigilant about redefining its business model and dealing with stagnant or loss-making segments. While we repeat our belief from last month that the artnet Auctions segment will begin to make money in the next couple of years, we remain concerned that artnet Galleries and to a lesser extent Advertising could pose challenges to the company’s finances. Though the economy has made a considerable recovery, the effects of the financial crisis and recession have made business owners much more conscious of costs, which will increasingly put the Galleries segment at risk given other platforms through which galleries can communicate with each other and their customers.
To their credit, Artnet does recognize the need to bring fresh life to the Galleries segment, stating, “The Group projects to offer a new plan to the gallery members in 2011, which is anticipated to increase revenue for this product in the coming year.” On May 16, Artnet also announced a new lower-priced subscription plan for its Database products, which it claims was made possible by reduced production costs associated with the segment. As the Price Database is traditionally a high-revenue segment for Artnet, more attractive pricing could bring additional subscribers and revive the company’s profitability in this segment.
Artnet (FRA:AYD) shares are up 0.94% YTD as of May 16, 2011.