Getty Images: Adapting to Change
This image distributor is focusing in on the future for its industry.
It's been said that a Monet painting looks good from afar, but up close it looks like a jumbled mess. The opposite appears true for Getty Images. At first glance, the company's fourth-quarter earnings report seemed grim. Earnings of 50 cents per share fell six cents short of Wall Street's expectations -- marking the fourth consecutive quarter that Getty has missed analysts' estimates. Moreover, earnings slipped nearly 30% from the same period a year earlier.
But investors were unfazed. On January 30, the first trading day after the earnings announcement, Getty's stock (symbol GYI) jumped 9%. It gained another 2% on January 31, closing at $49.27. Why such optimism? On further inspection, Getty's fourth-quarter results revealed that the company ended an otherwise disappointing year on a high note.
It has been a rough year for the Seattle company, which manages a database of photographs and other images that are licensed for use by advertising agencies, Web sites, magazines, newspapers, and film producers. Getty is facing challenges on several fronts. The print industry is slowing, sparking changes in the ways clients use stock images. Meanwhile, to fend off competition from rivals that employ new pricing models, the company has launched restructuring plans. Some analysts remain skeptical "until the company can string together several quarters of stable revenue growth and consistent earnings per share results," as one of them, Christa Sober Quarles of Thomas Weisel Partners, wrote in a note to clients. She maintains a "market weight," or neutral, rating on the stock.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But, put in perspective, these obstacles aren't as dire as they seem, say Bear Stearns analysts James Ballan and Ryan Casey. "Although long-term challenges remain, we believe the company's fourth-quarter results have proven these concerns to be unfounded," they told clients. The pair upgraded Getty's stock and gave it a year-end price target of $60.
Getty announced in October that it was laying off several dozen employees and hiring others with different skills, as well as consolidating office space. Excluding the restructuring costs associated with those moves, the company earned 66 cents a share during the fourth quarter, compared with 65 cents a year earlier. What's more, Getty's sales rose 10% in the fourth quarter, to $203.5 million, and also rose 10% for the year, to $807 million. Getty also generated free cash flow last year of $269 million, $208 million of which it used for share repurchases.
Ballan and Casey expect Getty to earn $2.62 per share this year and $2.98 in 2008. That gives it a price-earnings ratio of 19 on this year's earnings and 16 on next year's. These estimates are actually on the conservative side, the two say. "We believe this conservative case is enough to illustrate a compelling investment opportunity at current prices." The analysts think Getty's revenue will grow 5% to 6% annually through 2012, and that earnings per share will grow 12% to 13% a year. (Getty itself says it expects 2007 revenue growth to be in the mid-single-digit range, and earnings growth in the high-single digits.)
Several factors should drive Getty's performance in the coming year. The company remains one of the biggest players among image distributors -- and that's a good thing, because ad agencies and other clients don't want to sort through different databases looking for the photos they want to buy. Getty is also expanding its reach overseas, the source of more than half of its sales. That part of the business is growing rapidly, as text-heavy advertisements are disappearing in such emerging nations as China and India, and newspapers are beginning to incorporate more photographs. The Getty unit responsible for licensing images for film is also growing at a healthy pace.
Also worth noting is that San Francisco-based investment firm Blum Capital Partners has taken a 5% stake in Getty Images, according to a January 29 regulatory filing. The firm has a history of getting involved in the operations of companies it invests in.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Retire in the Canary Islands for Beaches and Natural Beauty
Retirees enjoy Spain's Canary Islands, where life can be as hectic or chilled as you like. The one constant will be almost year-round mild weather.
-
The '120 Minus You Rule' of Retirement
The '120 Minus You Rule' updates an older retirement rule, with a twist. Here's how this approach to retirement portfolio construction can work for you.
-
How to Invest for a Fall Interest Rate Cut by the Fed
A lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?
Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
-
How the Stock Market Performed in the First 6 Months of Trump's Second Term
Six months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Berkshire Hathaway Stock 20 Years Ago, Here's What You'd Have Today
Berkshire Hathaway is a long-time market beater, but the easy money in BRK.B has already been made.
-
If You'd Put $1,000 Into Procter & Gamble Stock 20 Years Ago, Here's What You'd Have Today
Procter & Gamble stock is a dependable dividend grower, but a disappointing long-term holding.
-
My Three-Day Rule for Investing: And If it Applies Now
Stock Market I've seen a lot in my career. Here's what I see now in the stock market.
-
Is It Time to Invest in Europe?
Stock Market Europe is being shaken out of its lethargy, militarily and otherwise, by Donald Trump's changes in U.S. policy. Should investors start buying?
-
Fed Leaves Rates Unchanged: What the Experts Are Saying
Federal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.