Skate's Art Investment Review

artnet has released its financial results for nine months ending September 30, 2011. They are disappointing. The firm continues to be loss making, revenues remain flat and artnet’s major hope, online art auctions, produced just 12.8% growth on a y-t-y basis and remains its second largest loss making business unit (after its magazine publication business). Perhaps the only interesting new development at artnet came from its mandatory disclosure on changes in significant shareholdings; the company’s long-term minority investor—San Francisco-based Artis Capital Management LLC—doubled its ownership interest in artnet over the course of 2011 and now owns 15.13% of the firm.

Skate’s believes that artnet under Hans Neuendorf’s leadership is reaching a point where significant change might be needed, which could be stimulated by the rise of a potential activist shareholder. We met Mr. Neuendorf this week and learned that apart from a new analytics product launch the firm is planning for this December, everything else remains business as usual at 61 Broadway.

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Skate’s is pleased to announce that Citibank, specifically the Citigroup Investment Research division, has recently launched investment coverage of Sotheby’s (NYSE:BID). This marks the first time that this leading financial institution has devoted specific coverage to Sotheby’s.

Citi’s coverage of Sotheby’s is welcome on several levels. First, it provides further acknowledgement of a reality that Skate’s has long espoused, i.e., that art and the securities of companies that provide art-related products and services afford institutional and individual investors with a viable alternative asset choice. Second, as the largest publicly-traded art industry company in the world, the high liquidity of Sotheby’s shares allows investors an excellent opportunity to invest in a leading participant in the art market without the costs and risks involved in actual art ownership.

Authored by Oliver Chen, CFA, and Kate McShane, CFA, Citi’s research on Sotheby’s—written according to top Wall Street standards—offers a refreshing and professional analysis of the auction house business model and its upside potential. Skate’s fully welcomes any research and analysis from major financial institutions focused on the art industry. Although we remain a bit more bullish about Sotheby’s, we find Citi’s analysis extremely interesting. Citi’s initiation of Sotheby’s coverage is a very healthy event for the global art industry.

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For years at Skate’s we have been consistently suspicious of Artprice, the French art market data provider and classified listing service for galleries (click here for Skate’s coverage of Artprice). This summer, however, quite a few of our readers have contacted us to ask that we reconsider our views, citing spectacular share price performance and volumes dynamics at Artprice. They did have strong arguments to disagree with our skeptical view of Artprice, whose stock saw a massive upward re-pricing in early April from USD 11.70 on April 6 to USD 40.90 on April 13 (converted to USD from EUR, which is Artprice’s base trading currency). It has remained at these new levels since then following yet another jump in late May, with no correlation whatsoever with either the market’s overall performance measured by the S&P 500 or with the industry as measured by Skate’s Art Stock Index benchmark.

To read the full article with data, please click here.