Growth For Getty Images Is Underestimated (NYSE:GETY)

Introduction

There is growing demand for the licensing of stock photos and videos in the world of digital media. I believe that Getty Images (NYSE:GETY) has a sustainable competitive advantage over its biggest rival, Shutterstock (SSTK). While Getty has posted net losses over the past four years, I predict the company will generate positive net income in the next one to two years. This has led me to take a bullish position on the stock and assign a price target of $8 per share. The stock closed on October 2nd at $5.61, but after a downgrade from Redburn Atlantic on October 3rd, the stock dropped by 14% on October 4th, eventually settling at around $4.50 the last week of October. In my opinion, Getty is distinguished from its competitors by offering superior media content, and the market has overreacted to the decrease in “a la carte” purchases by small and medium-sized enterprises. In this article, I explain what I feel the market has overlooked. Are you ready to ride the wave of the visual content revolution and perhaps see long-lasting returns for your portfolio?

Comparative Income Statement and Balance Sheet

Examining the fundamentals from 2019 to 2022, we see that revenue has steadily increased at an annual rate of $33.5 million. Annual non-operating expenses have declined at a rate of $6.4 million. SG&A, operating income, and non-operating income have remained fairly consistent. In my opinion, the revenue growth is likely being overlooked due to the net losses of 2019, 2020, and 2022, leaving investors with the impression that the net income of 2021 was simply an outlier.

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This has created an overly pessimistic outlook from the broader market of investors. To quote Benjamin Graham in his book The Intelligent Investor, “The intelligent investor is a realist who sells to optimists and buys from pessimists.” We should not overlook the fact that Getty closed 2019 with $19 million of short-term debt, but reduced this to zero in 2022. At the same time, customer advances grew from $141 million in 2019 to $171 million in 2022. Clearly, an increase in customer advances would not be possible with the existence of a strong relationship between Getty and its customers, and the reduction of short-term debt is a sign of financial prudence on behalf of management.

The comparative income statement suggests that these annual losses are primarily caused by non-operating losses. While financial losses of any kind are undesirable, I would be more concerned if the losses were operating losses, since that would represent an issue with Getty’s primary function. In this case, the non-operating losses stem from interest on long-term loans. Since management is taking steps to reduce this debt, we can anticipate a continued decline in non-operating losses and eventually positive net income. Overall, I believe that the balance sheet reflects efforts to strengthen the company’s equity base and financial standing.

MACD and RSI

To better my understanding of the stock price, I like to examine the moving average convergence divergence (MACD) and relative strength index (RSI) to see if the current stock price is being influenced by recent trading activity. A 52-week chart of the MACD and RSI indicators is presented below, along with the stock price. Based on RSI, Getty appears to become oversold when the stock price drops to $4 per share and becomes oversold at $7 per share. The yellow highlighted sections below on the stock price and RSI chart are to emphasize the apparent correlation between RSI and stock price, which informs my decision about thresholds for overbought and oversold conditions. However, I am not saying that the existence of an overbought or oversold condition indicates anything about the true value of the company, as I believe the indicator only speaks to short-term pricing action. Something like a drastic turnaround in the next quarterly report could break this model.

Moving on to MACD, we saw a sharp decline in divergence throughout November 2022. Since that time, there have been nominal changes in the amount of divergence, with MACD hovering around 0. This suggests that there is little momentum in the market right now.

If I were to offer guidance based solely on this technical analysis to a short-term investor, I would suggest holding off on making trades with this stock until the Q3 2023 results are out. Presently, it seems that the company is neither overbought nor oversold and there is no divergence between the MACD and signal line. The average Wall Street analyst’s price target is $6.92, which is pretty flat compared to the current price and previous volatility. I think these analysts are anticipating that the Q3 2023 report will not contain anything substantially different from what is already known. If that is the case and the analysts are right, then perhaps a swing trader should consider buying the stock at $4 per share and selling at $7 per share until we see a breakout from this pattern. However, please note that this is antithetical to my thesis. I am suggesting that Getty Images should be held as a long-term investment, and I do not advise day-trading this stock. I am not a day trader, but if you are compelled to do so, this may be a good opportunity for you (if you decide to try this, please let me know how it goes by leaving a comment or private message).

Comparing Business Models of Getty Images and Shutterstock

To support my claim that Getty’s premium collection gives it a long-term sustainable advantage over Shutterstock, we will need to examine the brand image of each company, which I believe is reflected in their respective business structures.

One indication of Getty’s reputation is reflected in the pricing of its images, which generally range from $50 to $499 per image. Shutterstock (SSTK), on the other hand, offers some images for as low as $7. Aside from the impact of image quality on the price per image, the difference in pricing could also explained by each company’s target audience. Getty aims to serve both major media enterprises and individual customers in search of top-tier editorial and commercial-use stock visuals, while Shutterstock caters to smaller companies and freelancers. Shutterstock may have more potential customers, but Getty Images can target higher-end clients with larger pocketbooks (the images at the top of each Seeking Alpha article are provided by Getty Images).

Examining the number of images owned by each company, Getty Images has an expansive collection of more than 380 million images and videos, over 11 million editorial images, and a substantial music library featuring millions of tracks. By numbers alone, this collection is dwarfed by Shutterstock’s culmination of almost 600 million images and more than 45 million video clips. One might initially think that Getty Images has a lot of content, but then change their mind after comparing it with Shutterstock. I think that by anyone’s standard, both companies certainly have a lot to offer, so remember the old phrase, “Comparison is the thief of joy.” When you are in the space of content creation, it is better to have quality over quantity. If asked, I believe most people would agree that it is better for a business to own a select repository of high-quality images as opposed to millions of images that are seldom desired. Getty has the financial resources to acquire more images if it needs to, so we can conclude that their selection process for images must be more selective than Shutterstock’s. To otherwise try and quantify the difference in quality proves difficult, as one would have to be able to collectively evaluate the art and context of each library.

With respect to the pricing structure of each company, both platforms provide access to royalty-free images, thereby offering users a wide array of content without royalty obligations. However, a significant divergence arises concerning licensing options. Getty Images stands out by offering exclusive rights-managed licenses, ensuring that purchasers have exclusive usage rights for their selected images. In contrast, Shutterstock does not provide this exclusive licensing feature. Another noteworthy contrast pertains to subscription models. Shutterstock extends the convenience of annual and monthly subscription plans, catering to users seeking a consistent and cost-effective image source. Getty Images does not offer subscription-based pricing, necessitating one-off purchases based on image size and specific requirements. Both platforms grant users access to on-demand images, allowing for flexibility in selecting and obtaining visual content. However, Getty Images further distinguishes itself by providing a dedicated team specializing in image clearances and rights management, facilitating a seamless and compliant experience for users. Shutterstock does not offer a similarly dedicated clearance team, potentially leaving users with greater responsibility for addressing licensing and rights-related issues independently.

Getty Images and Shutterstock are Leveraging AI

The use of Artificial Intelligence (AI) in stock image subscription services initially appeared to be a subject of significant divergence between Shutterstock and Getty Images, with Shutterstock being an earlier adopter of AI. However, recent developments indicate that Getty Images has its own plans for adopting AI.

In October 2022, Shutterstock made a notable move by expanding its partnership with OpenAI and integrating OpenAI’s text-to-image tool, DALL-E 2, into its service. Concurrently, Shutterstock introduced a compensation fund for content creators, aligning with models seen on social media platforms. This strategic move incentivizes content creation and ensures a constant influx of images, amplified by AI; however, the impact on image quality remains a question.

Meanwhile, Getty Images embroiled itself in a legal battle with Stability AI in the UK, where they allege copyright infringement by Stability AI. Such questions prompted Shutterstock to ban the upload of AI-generated images from third parties. At this point, I think it is evident that AI will continue to play a significant role in future advancements, so businesses should embrace the integration of AI into their products. To some, the lawsuit indicated that Getty was going against the grain here, which I believe may be another factor that the market has overreacted to. On the contrary, I believe this lawsuit was part of a broader strategy by Getty to maintain its competitive edge by curtailing the unfair use of AI by other companies. The fast-paced nature of technological development often outpaces legal frameworks, so the lawsuit may help to establish some ground rules in this uncharted area of copyright law. On September 25th, 2023, Getty Images announced a partnership with Nvidia to launch their own AI for composing images known as Generative AI. Nvidia (NVDA) is no stranger to the tech industry, and I believe that this partnership will not only strengthen the brand of Getty Images, but also form a product that rivals the existing partnership between Shutterstock and Stability AI.

Qualitative Valuation

As previously stated, “The intelligent investor is a realist who sells to optimists and buys from pessimists.” In determining my valuation for the company, I look at what other firms are reporting to get an idea of the market sentiment. I came across an informative article by Defense World, which states that Tower Research Capital LLC TRC acquired a new stake in Getty Images valued at $28,000, Victory Capital Management increased its stake by $60,000, Lazard Asset Management acquired a new position of $41,000, and Ergoteles LLC increased its position by 33% in 2023. Benchmark increased its price target from $7 to $8. Citigroup reduced their price target from $8 to $6, although this still leaves room for profit since the stock is only trading at $4.50. Also, Wedbush set a price target for $7.70.

On the other hand, Redburn Atlantic changed their rating from buy to neutral. Imperial Capital set a price target of $5.75. Macquarie reduced their price target from $7 to $5. The more we look, it becomes evident that there is a divide in how hedge funds and analyst firms feel about this stock, creating a sort of tug-of-war which could result in a prolonged stagnation of the stock price. The question we must consider is, who will win the war? Based on the other factors discussed in this article, I feel that in the next 1-2 years, positive sentiment will increase and we will eventually see the stock price return to its 52-week high at around $8 per share.

Risks

While this thesis carries an optimistic tone about Getty Images Holdings and projects a potential stock price increase, it’s essential to consider several risks and factors that may affect the accuracy of this projection.

As with any publicly traded company, Getty Images faces competition from various sources, including Shutterstock and other stock image providers. The industry’s competitiveness could impact Getty Images’ ability to maintain or grow its market share. Getty’s ability to maintain a brand image in which consumers view Getty as having a superior repository of content is essentially the foundation of this thesis, and necessary for the company to turn around its financial position.

With that, I have also placed significant weight on the financial projections. Getty Images has reported fluctuating financial results, including net losses in some years. These financial challenges may continue to affect the company’s ability to generate positive net income in the future.

The legal battle with Stability AI mentioned in the article indicates potential legal risks for Getty Images, that is, in the event that their case is not successful and an unfavorable legal precedent is established for Getty. Litigation costs and the outcome of such lawsuits can impact the company’s financial health. Aside from potentially adverse legal action, the more broad use of AI in general by Getty Images could pose additional risks to the brand if not managed effectively. It’s uncertain how AI advancements will impact the company’s revenue and image quality.

There are also certain risks that are less specific to Getty Images. Stock prices are influenced by market sentiment, and unforeseen events or shifts in investor sentiment can lead to rapid price fluctuations, regardless of a company’s fundamentals. Getty Images’ financial performance can be influenced by macroeconomic factors such as economic downturns or changes in consumer and business spending on visual content.

Regarding business structure, I mention in my comparison of Getty Images and Shutterstock that there is a shift in customer preferences towards subscription-based models. Changes in industry trends could also impact Getty Images’ revenue and profitability.

It’s important for investors to conduct thorough due diligence and consider these risks. While the article provides a positive outlook, investing in stocks always carries inherent risks, and the actual stock performance may differ from the projections made in the article. In this case, it is important to note that my price target of $8.12 per share is based on the speculation that the company’s financial condition will improve, primarily through the decrease of non-operating expenses. Investors may find other, more favorable investment opportunities with companies that have greater amounts of tangible assets.

Conclusion

Getty Images represents an intriguing opportunity in the world of visual content creation and distribution. In this article I have examined various facets of Getty Images, its competitive positioning, financial performance, and the potential factors influencing its future prospects.

While the article presents a compelling case for Getty Images, it’s crucial to acknowledge the associated risks and uncertainties. The competitive landscape, fluctuating financial performance, legal challenges, and the integration of AI into its services are all factors that can influence the company’s trajectory. Furthermore, the macroeconomic environment, evolving industry trends, and market sentiment can impact stock prices in unpredictable ways.

The projection of a $8 per share price target is based on the assumption that the market has overreacted to recent downgrades and that Getty Images holds a long-term competitive edge. However, this projection is subject to change based on evolving market conditions and Getty Images’ ability to execute its strategies effectively.

In the dynamic realm of digital media, Getty Images emerges as a captivating contender. Yet, as investors weigh their options, it’s imperative to view the bigger picture and carefully assess the associated risks. While embarking on the visual content journey could lead to enduring gains, maintaining a watchful eye and staying well-informed is the key to navigating an industry brimming with both opportunities and enigmatic snapshots of the future.