Back in black
Artnet AG NA O.N. (AYDGn.F) has reported a small profit for 2013 – a year when substantial changes were made to the business to better equip it for its rapidly changing and fast growing market. We expect the benefits of this programme and the associated realignment of overheads to be reflected in improving profitability through FY14. The share price is at a notable discount to other online commerce and content businesses.
Standing out in a crowded market
While there are many participants in the online art space, artnet offers a range of activities rather than focusing on a single aspect. Its transaction database, compiled over more than 20 years, gives further key differentiation and an authoritative voice. The group’s challenge is how best to monetise its opportunity. Management’s focus since 2012’s failed bid has been on improving earnings through better processes and efficiency. At the corporate level, this has involved tightening up management controls and revising KPIs; at divisional level it has included changing the commission model and listing fees in the Auctions business and adjusting pricing and service packages for Galleries, resulting in lower volumes but higher margins. The imminent website relaunch will improve navigation and functionality, integrating all the group’s products and services and helping all divisions to strengthen their market positions. The recently-launched artnet News should also drive traffic. Advertisers delayed spend ahead of the website relaunch and we would expect revenues to build more strongly once it is up and running.
FY13: Revenue flat, costs down, cash flow up
FY13 was a transitional year for artnet when the first benefits of restructuring began to accrue. Revenue was flat in US$ terms, but focus on cost has started to drive margin – a process that should accelerate in the current year, while the peak of the systems spend has now passed. The balance sheet had net cash at the year end.
Valuation: Some way to go
In business for over 25 years and listed for 15, changes in artnet’s market and activities and the start-up of the Auctions business make P/E a poor indicator of underlying value. Group net assets at end FY13 were €2.2m (40c /share), but this does not reflect the full value of the revenue-generating database at the heart of the group’s activities. While there are no obvious quoted peers, an EV/Sales-based valuation for international internet-based companies derives a price of €5.58, while a DCF on conservative assumptions suggests a value of €5.14.
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