Getty Images: Unique Value Proposition With A Large TAM

Oct. 05, 2022 7:19 AM ETGetty Images Holdings, Inc. (GETY)2 Comments
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Summary

  • GETY operates in the digital content industry with a large and growing addressable market.
  • GETY has a unique value position that differentiates itself from its peers.
  • GETY transition to a subscription model improves the margin profile.

Map of USA on digital display

da-kuk/E+ via Getty Images

Thesis highlight

I recommend going long on Getty Images (NYSE:GETY) ($6.79 as of this writing). It operates in a large and growing industry supported by several growth drivers and has a product with a unique value proposition to continue gaining share. As GETY continues to carry out its growth strategy, I expect it to hit management’s guidance and make $1.2 billion in revenue and $420 million in EBITDA in FY25 which, based on a 12x forward EBITDA multiple in FY24, would give it an equity value of $9.30 per share, which is 37% more than it is worth now.

Company overview

As a global marketplace and content creation studio, Getty Images has customers all over the world. Users of the company's services, which include Getty Images, iStockphoto, and Unsplash, include editorial and commercial photographers, news organizations, and corporations. In order to provide its customers with content, Getty Images collaborates with more than 488k contributors and 300+ premium content partners. Customers of the company have access to content that is unmatched in terms of scope, depth, and quality. This is because the company owns one of the largest privately held photographic archives in the world, which has more than 135 million images (data from S-1).

Investments merits

Large addressable market

The TAM is enormous here, and it doesn't take long for anyone to realize just how massive it is as the world gradually and increasingly shifts to a digital economy. Before I get into the growth drivers for this industry, here is a visual representation of the TAM and its verticals.

TAM

GETY Virtual Analyst Day

The ever-increasing demand for visual media is a major factor. There is mounting pressure on businesses and media organizations to maintain a presence across an increasingly diverse array of digital and traditional distribution channels. YouTube, Instagram, and TikTok, among others, are prioritizing video content, which means that users need to consistently publish content in the form of advertisements and direct messages. Once there is a level playing field for all businesses in terms of their digital footprint, the winners will be the ones who create the most compelling digital content, such as high-quality video. With the rise of over-the-top [OTT] services and video advertising, the need for high-quality video production has never been greater.

To better grasp the TAM, here are some numbers. According to insightSLICE, the global digital content market will increase from $11 billion in 2019 to $38 billion in 2030 at a CAGR of 12%, while global digital video ad spend will increase at a CAGR of 17%, from $60 billion in 2020 to $111 billion in 2024, according to PubMatic. In FY21, GETY earned $919 million in revenue (data from S-1).

As was previously mentioned, corporations need to increase their online visibility. With the rising cost of marketing, more and more businesses are bringing their own creative marketing in-house to better control the volume and frequency of their content's consumption. According to the World Federation of Advertisers, 74% of in-house creative teams were established within the last five years, supporting this shift. As of December 2021, only about half of the world's top 3,000 businesses, including iStock, had licensed content from GETY, as per GETY. Annually, less than 10% of companies that have licensed GETY content spend $50,000 or more (S-1 data). For GETY, this is a golden chance to expand its reach and take a larger slice of the market. In order to take advantage of this opportunity, GETY has refocused its sales team and incentive structure on expanding the company's presence in the corporate market and increasing the company's revenue from existing corporate customers. Its value proposition was strengthened through the introduction of new products and services. For instance, GETY, for instance, has upgraded some of its products, such as Media Manager, introduced new ones, such as Custom Content, and expanded its capacity for providing customer service in comparison to its competitors.

All businesses need to be well-represented online, but SMBs struggle more than their bigger counterparts due to a lack of marketing resources. Even so, the demand for visual content is rising as SMBs (Deloitte report) continue to expand and improve their online presence. In 2021, Upwork projects that the global freelance market generated $1.3 trillion in revenue (up $100 million from 2020), making the SMB market a sizable and growing one. There is another visual content growth driver in the SMB space thanks to the proliferation of platforms that make easy production and distribution possible - i.e., anyone can now join the ranks of creators. There are more than 46 million independent content producers, according to SignalFire, and these creators increasingly access pre-shot content to support their projects and productions, which in turn supports the products that GETY offers.

Unique value proposition

To begin with, GETY has a huge international footprint, serving clients in more than 200 different countries and territories, and has over 2.3 billion searches a year. All of these aid GETY in better understanding search trends and preferences. On top of these, another key advantage that GETY has is its team of 120+ photographers and videographers and a dedicated creative insights team. GETY's editorial division has exclusive rights and access to many major sports leagues, where it is the official photographer or photographic partner of over 80 sports organizations around the world. Many prominent sports leagues and tours, such as the PGA Tour, NBA, and Formula One, are examples of such groups. The reason GETY was able to do it was because it was the first photographic agency to partner with leading sports governing bodies around the world.

Sports access

GETY Virtual Analyst Day

Shift to subscription model improves margin

As of LTM2Q22, GETY had 89,000 annual subscribers, with subscriptions accounting for 48.2% of total company revenue, up from 44.3% in 2Q21. Management has emphasized the importance of growing its subscription business and promised to make it an ongoing priority. Getty's focus on subscriptions has increased its average revenue per user and lifetime value, shifted its revenue mix toward more recurring revenue, and reduced its need for ongoing marketing spend, all of which are beneficial to the company's profit margins. I agree with management that the 60% of total revenue that is expected to come from subscriptions is possible given how things are going now.

Subscription attachment rate

GETY 2Q22 earnings

Valuation

Price target

My model suggests a price target of ~$9.30 or ~37% upside from today’s share price of $6.79. This is on the basis of 7% revenue growth from FY22 to FY25 and a forward EV/EBITDA multiple of 12x.

Valuation

Image created by author using data from GETY's filings and own estimates

My forecasts are based on management’s FY22 and long-term organic growth guidance. Given the multiple revenue growth drivers, GETY should grow in the mid-to-high single digits (5 to 7%) as expected. In fact, I believe management could be sandbagging the numbers given that GETY has grown at low-teens CAGR historically since 2017, hence there is a good chance for revenue to grow faster. As for EBITDA margin, management has guided to a mid-30% margin, which I believe is definitely achievable as it transits to a subscription model.

As for valuation, given GETY does not have a long trading history, I looked at its closest comp - Shutterstock (SSTK) - to benchmark the right valuation multiple. Over the past 5 years, SSTK has traded at an average of 12x forward EBITDA, which I used to value GETY in FY24 as well.

Risks

Increased competition for talent

Due to its high royalty rates and exclusive contracts with Getty Images and iStock, GETY is able to draw in and retain creators of top-notch content. If Getty's competitors offer better compensation or deals to creators, it could hurt Getty's content pipeline. This would mean that Getty would lose customers and make less money.

Loss of content partnership

Over 80 sports organizations, including the PGA Tour, F1, FIFA, the International Olympic Committee, and many more, have designated Getty Images as their official photographer or photographic partner. If Getty loses even one of these strategic alliances, it could lose content and customers to other platforms and sources.

Recession

The majority of GETY's clients are businesses of all sizes, which means they are vulnerable to the ebb and flow of economic cycles. GETY would feel the pinch if companies cut their marketing and content budgets in response to a weakening economy.

Conclusion

To conclude, I believe GETY is worth ~37% more than its value today ($6.79 as of writing). I believe GETY can hit its guidance given the several growth drivers that support it, and the transition to a subscription model would definitely boost margin given there is less need to spend on customer acquisition costs. We are also looking at a very large TAM as well. That gives me comfort that GETY can continue to grow at its guided rate.

This article was written by

Heinsite Capital profile picture
147 Followers
I am an investment analyst in a small boutique firm, covering companies across APAC and US.With over 5 years of dissecting businesses and what makes them tick, I look for opportunities in the markets and am not confined to a particular strategy. I look for strong companies with superior moats, but also believe strongly in managing risks to survive to fight another day.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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