- Sotheby’s Q1 2013 Performance: Fierce Competition and Focus on New Markets Leaves Auction House at a USD 22 Million Loss
- Collectors Universe Record Revenues Pave the Way for Asian Activity
Neuendorf Goes All-In as artnet Melts Away, and Global Pure-Play Art E-Commerce Rivals Raise Over USD 50 Million in Fresh Capital YTDApril 30, 2013
artnet delayed publication of its 2012 financial results by over four weeks and finally released the results on Monday, April 29. Hardly a surprise, artnet’s annual report now evidences what Skate’s and other industry analysts suspected long ago—that artnet is heading toward a liquidity crunch and is hugely underperforming in its auction segment (proclaimed by artnet as its area of focus) when compared to its pure-play rivals like auctionata in Berlin, artspace, art.sy and paddle8 in New York and Saatchi Online in the UK.
All the artnet performance metrics in 2012 worsened on a y-t-y basis. Revenues are down by 6% in USD terms (flat in EUR terms due to the favorable USD/EUR exchange rate), and the firm went from an operating profit of EUR 0.9 million in 2011 to an operating loss of EUR 0.7 million in 2012. Furthermore, artnet’s operating cash flow went from positive to negative, its headcount increased and its cash position has been depleted to the level of 4-5 months at the burn rate artnet currently generates.
In Q3 2012, Hans Neuendorf successfully campaigned against Redline’s hostile takeover attempt when the Luxembourg regulated and based, Russian-funded investment manager offered EUR 6.4 per share of artnet stock (Skate’s advised on this transaction). The stock is currently trading at the EUR 2.8 per share level, living evidence of a bad decision made by Mr. Neuendorf and those shareholders that supported him last year.
artnet’s shareholders can find little comfort in the company’s 2012 disclosure – the auction segment that was supposed to drive the firm’s topline has stalled and produced just EUR 2.3 million in sales and EUR 0.18 million in gross profit for the year. This is less than 15% in revenue growth compared to 2011 and more than a 50% decline in gross profit compared to 2011.
This profitability decline is no wonder, as by now artnet has lost its first-mover advantage in the online art trading space completely. Much better capitalized, legacy and Neuendorf-leadership free, pure-play online art trading companies are grabbing market share and addressing the economics of the online art trade much faster. According to Skate’s estimates, the median growth of the six strong private peer group (Liveauctioneers, Saatchi Online, paddle8, artspace, auctionata and art.sy) was just below 40% in online art trading revenue for 2012, and these six companies raised over $50 million in fresh capital in the first four months of 2013. The online art trading market that artnet had for itself just three years ago is now an ultra-competitive space where artnet is no longer in the top three in terms of volume, has no capital with which to compete and possesses no remaining competitive advantages apart from its brand and price database. Those strengths are still important, but, based on the firm’s 2012 results, clearly not enough to ensure a viable business model under current artnet leadership.
Likely to avoid a going concern qualification, Mr. Neuendorf had to provide the auditors and shareholders with comfort that he would personally finance artnet through shareholder loans and deferrals of his compensation when the firm runs out of cash (and there is no if here – artnet will run out of cash this year).
In the global arms race for dominance in the online art trade, artnet has completely transformed itself from incumbent leader to an obvious victim. This only brings to mind a vivid image from a Jurassic Park movie: a white goat expecting T-Rex in the rain in the middle of a dinosaur theme park yet to be opened.
At below EUR 3 per share, and with no debt, no poison pills—thanks to the minority shareholders campaigning and litigation from last year—and some remaining prize assets, such as its price database and brand, artnet seems to be screaming for a new takeover suitor. Skate’s can bet we will hear about one shortly.
On April 9, the art world lost one of the most prominent artists of a generation. Zao Wou‐Ki, an abstract painter with mixed French and Chinese heritage, passed away at 93. During his life Zao Wou‐Ki had the opportunity to observe the incredible performance of his artworks on the international auction market. He was the 5th most valuable living artist worldwide and the 56th most valuable artist in general, according to Skate’s Top 5000.
The premium market for Zao Wou‐Ki was formed in 2006 when auctions saw his works fetch prices above USD 2 million. Ever since, these works, which have appeared on the market irregularly, have often caused substantial interest on the part of international buyers with sales doubling or even tripling pre‐auction estimates.
The total value of Zao Wou‐Ki’s 36 artworks in Skate’s Top 5000 is USD 132.4 million. 2011 was the strongest year in the history of his market with the total value of artworks entering Skate’s rating reaching USD 36 million.
Artworks by Zao Wou‐Ki have been sold at four key auction houses, including Poly International Auction, Ravenel, Sotheby’s and Christie’s. The latter accounts for 53% of the value of Zao Wou‐Ki’s premium works sold.
- Mallett’s Self-Salvation Strategy after Low 2012 Performance
- Weng Fine Art Announces 135% Profit Growth in 2012 and Plans to Integrate Further Activities into Current Business
- Collectors Universe Launches Operations in China, Opening Shanghai Office Amid Declining Performance
In 2013, in addition to regular publications dedicated to the state of the global art market, Skate’s is pleased to present a new angle of our research—Skate’s Focus. Upon choosing a particular country, Skate’s works with local art market specialists to identify and present the most current and accurate picture from the inside. The resulting report projects a two-sided view on the chosen country—the global market presence of native artists and the performance of the country’s domestic art market. As a pilot project, Skate’s has chosen Poland, a young but innovative and quickly growing art market in central Europe. Joining Skate’s for the current report is Art&Business Magazine, the leading Polish magazine dedicated to art.
- Sotheby’s Announces 2012 Performance Results, Falls Behind Christie’s
- Artprice 2012 Annual Performance: Stagnating Revenues amid Chinese Expansion
- MCH Group Sees Skyrocketing Share Price
This issue of Skate’s Art Investment Review focuses on the most important auction results in February and provides a detailed comparison of performance this year versus 2012. This issue also contains Skate’s insights into the latest performance of art funds.
In this Issue:
- February 2013 Contributes USD 0.5 billion in Premium Quality Art, a 10% Gain Over 2012
- Impressionist and Modern Art Holds 65% of Value in the Premium Market Segment
- Premium Segment of Contemporary Art Market Grows by 27% and Sees More Frequent Change of Hands
- Art Sales in February 2013 Confirm Investment Potential at the Top Level Previewwith ERR of 4.21%
- Insights into Latest Art Funds Performance
Collectors Universe: Numismatic Market Downturn Hits Overall Performance, Resulting in Nearly 50% Income ReductionFebruary 11, 2013
On February 7, 2013, Collectors Universe filed second quarter and half year performance results that reflect a troubled position for the company. Although the three months ended December 2012 are usually the weakest period of the fiscal year, this time the decline was even more significant due to an overall downturn plaguing the company’s core market.
With its involvement in the narrow sector of collectible coins and stamps, the only way Collectors Universe will be able to achieve success is to hold a leadership position in this market. Securing this position involves maintaining the highest level of expertise, continuous development of services, as well as growth of market share domestically and through conquering new markets. The company’s management has been active on all of these fronts; to date, Collectors Universe has pursued two main business development priorities—its online presence and its overseas operations.
The online services of Collectors Universe include a large, subscription-based database dedicated to certified coins, sports memorabilia and autographs. The company also offers online collection management that allows for monitoring of the latest market trends, current prices and supply. As for the growth in market share, Collectors Universe is investing heavily in its Hong Kong and Paris operations, which is translating into an increased volume of coins submitted.
Nevertheless, the current situation in which Collectors Universe finds itself is less than perfect. Exhibit 1 in the full Market Note shows that the company’s published performance results are universally negative in comparison to the previous year. Net revenues dropped by 16% to USD 9.6 million during the three months from USD 11.5 million in the same quarter of the prior year. Exhibit 2 reveals that this performance decline was caused by a 26% reduction in coin service revenues. Operating expenses decreased by 4%, while operating income dropped by 50% due to the decline in service revenues. Net income also fell, declining by 48% in the second quarter to USD 0.5 million.
Yet, despite the company’s difficulties, there was a silver lining in the second quarter performance; revenues generated by trading cards and autographs gained 10%, partially offsetting the overall dip. We should also note that not all external factors acted against the company. During a recent auction, a very rare first strike silver dollar from 1794 brought USD 10 million. In 2003, this coin was graded by Collectors Universe, which serves as evidence of the company’s expertise and reputation.
If Collectors Universe is to successfully overcome its present difficulties, the company’s newly appointed CEO, Robert Deuster, must further strengthen management and find a way to confront the challenges brought on by external factors.
To read the full Market Note with data, please click here.
Skate’s has expanded on its prior rankings of global e-commerce players and listed art industry companies to create the Skate’s Art Industry Scorecard. This new tool serves as a comprehensive research platform for better global art industry information and analysis.
The most important takeaway from this research effort is the massive and ongoing change that is taking place in the art industry. This change can be seen in the search for new business models aimed at further broadening the global art trade. One clear implication of this change is that the art industry is becoming an increasingly consumer driven sector of the global economy.
The system of selecting and ranking companies in Skate’s Art Industry Scorecard is largely based on numerical data combined with subjective factors and will thus likely cause a certain degree of controversy. We therefore offer it as an “open source” document and invite our readers to provide feedback and suggestions on how to improve the methodology going forward. Please send feedback to email@example.com.
In the third and final part of our Annual Art Investment Report, which will be published in early February, we will share our thoughts on where today’s art industry transformation will lead us. Specialty art retail and art destination management companies are our favorite business models of tomorrow.
Welcome to Skate’s Annual Art Investment Report for 2012! This year, our report will be published in three parts. Part 1 focuses on Skate’s Top 5000 ranking of the world’s most valuable works of art by public auction price. We examine the changes that took place in this premium segment by addressing market performance in comparison with 2011, specifically with regard to artist rankings, sales volume and value, repeat sales (i.e., investment performance), and general changes in the structure the ranking.
Part 2, which will be published in early January, addresses the global art industry. Analysis is focused on companies in the art industry (e.g., auction houses, dealerships, e-commerce platforms, and media businesses), art investment funds, art financial services, and publicly traded art industry companies (i.e., the companies comprising Skate’s Art Stocks Index). It also covers many of the challenges faced by art industry companies.