Michael Demaray

Getty Images: No Compelling Argument for Rich Valuation

Kevin, I think all of the issues you've raised are important and valid. I would also say that both management and (one would hope) investors are already aware of them. In the last conference call, the company discussed the future of the business being in user generated content. They also discussed a move away from photo stills to video and other design elements. The big question is whether management can successfully transition the company into this next iteration of business and whether the stock is properly priced given the risks and opportunities. The company is not dirt cheap but it does offer a 7% free cash flow yield on EV and has a strong balance sheet. To date it has enjoyed all but a virtual oligopoly in its space. But as you've pointed out -- is that sustainable and is the stock appropriately reflecting such risks? Only time will tell. Cheers and good luck...

Getty Images: No Compelling Argument for Rich Valuation

All good thoughts Kevin..

the Flickr discussion warrants another question -- Yahoo! owns Flickr. Is this a strategic path they would lead Flickr down. Nonetheless, regardless of Flickr, the same questions applies to any other photo sharing sight. Just today we have word of another site, Imagekind getting an investment from noneother than a Getty co-founder.

All that said, before GYI's recent buying spree -- they had a ton of cash on the balance sheet. I'm guessing this is why Blum Capital got involved -- perhaps for a recapitalization. Certainly the market assumed something of th sort when it was announced in Barron's. I would not be surprised if the recent moves by Getty (acquiring a few other sites) have been contrary to what any activist sharehholder would want (signaling a potential poor use of cash). In light of this, I view the called off talks with JUPM to be a positive. It will be interesting to see if Blum and other invested hedge funds (Riverpark, etc.) continue to build their position and translate that into pressure on management for value realizing change, or will they blow out of their positions given Getty's recent buying spree? My guess is they will apply pressure.

Getty Images: No Compelling Argument for Rich Valuation

Yes, GYI faces growing competition from online alternatives. However, these alternatives face a few potential barriers: 1.) rights management -- how will the collect and enforce on behalf of the photographer? 2.) quality consistency -- if I were to go to Flickr, each image I would receive would not be standardized as to quality, size, etc. This may not be a big deal for web based image use, but when you move to the print side, it becomes more of an issue. Nonetheless, and to your point, these barriers aren't terribly high.

Lastly, don't rule out Getty's iStockPhoto.com which is addressing the very challenge it is facing, namely user generated content. Additionally, the content here is more professional. If you peruse Flickr you end up with an amalgam of pictures of random people on vacation, pets, etc. IStockphoto is geared more to the design side.