Culmination of the thesis
I recommend going long on Getty Images (NYSE: GETY) ($6.79 to date). It operates in a large and growing industry supported by several growth engines and offers a product with a unique character. value proposition to continue to gain market share. As GETY continues to execute on its growth strategy, I expect it to meet management’s guidance and deliver $1.2 billion in revenue and $420 million in EBITDA over the course of the year. in FY25, which, based on a forward EBITDA multiple of 12 times in FY24, would give him a net worth of $9.30. per share, or 37% more than its current value.
As a global marketplace and content creation studio, Getty Images has clients around the world. Users of the company’s services, which include Getty Images, iStockphoto and Unsplash, include editorial and commercial photographers, news agencies and corporations. In order to deliver content to its clients, Getty Images works with more than 488,000 contributors and more than 300 premium content partners. The company’s customers have access to content unmatched in scope, depth and quality. Indeed, the company has one of the largest private photographic archives in the world, which includes more than 135 million images (data from S-1).
Benefits of investments
Large addressable market
The TAM is huge here, and it doesn’t take long for anyone to realize just how massive it is as the world gradually shifts more and more to a digital economy. Before discussing the growth drivers of this industry, here is a visual representation of the TAM and its verticals.
The ever-increasing demand for visual media is a major factor. Companies and the media are under increasing pressure to maintain a presence across an increasingly diverse array of digital and traditional distribution channels. YouTube, Instagram, and TikTok, among others, prioritize video content, which means users should consistently post content in the form of ads and direct messages. Once all companies are on an equal footing in terms of digital footprint, the winners will be those 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 understand the TAM, here are some figures. According to insightSLICE, the global digital content market will grow from $11 billion in 2019 to $38 billion in 2030 at a CAGR of 12%, while global digital video ad spend will grow at a CAGR of 17% from $60 billion in 2020 at $111. billion in 2024, according to PubMatic. In FY21, GETY had revenue of $919 million (data from S-1).
As mentioned earlier, businesses need to increase their online visibility. With the rising cost of marketing, more and more companies are bringing their own creativity internal marketing to better control the volume and frequency of consumption of their content. According to the World Federation of Advertisers, 74% internal creative teams have been set up over the past five years to support this development. As of December 2021, only about half of the world’s top 3,000 companies, including iStock, licensed content from GETY, according to GETY. Each year, less than 10% of companies that license GETY content spend $50,000 or more (S-1 data). For GETY, this is a golden chance to expand its reach and capture a bigger share of the market. In order to capitalize on this opportunity, GETY has refocused its sales team and incentive structure on expanding the company’s presence in the enterprise market and increasing the company’s revenue from corporate customers. existing. Its value proposition was enhanced by the introduction of new products and services. For example, GETY, for example, has upgraded some of its products, such as Media Manager, introduced new ones, such as Custom Content, and expanded its ability to provide customer service compared to its competitors.
All businesses need to be well represented online, but SMBs struggle more than their larger counterparts due to a lack of marketing resources. Even so, the demand for visual content is growing 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 SME market a large and growing market. There is another driver of growth for visual content in the SMB space through the proliferation of platforms that facilitate production and distribution – that is, anyone can now join the ranks of creators. There are over 46 million independent content producers, according to SignalFireand these creators are increasingly accessing pre-shot content to support their projects and productions, which in turn support the products offered by GETY.
Unique value proposition
For starters, GETY has a huge international footprint, serving customers in over 200 different countries and territories, and performs over 2.3 billion searches annually. All of these help GETY better understand search trends and preferences. In addition to this, another key advantage of GETY is its team of over 120 photographers and videographers and a team dedicated to creative ideas. GETY’s editorial division has exclusive rights and access to many major sports leagues, where it is the official photographer or photographic partner of more than 80 sports organizations around the world. Many top sports leagues and tours, such as the PGA Tour, NBA and Formula 1, are examples of such groups. If GETY was able to do this, it was because it was the first photographic agency to partner with the main sports governing bodies in the world.
Switching to subscription model improves margin
As of LTM2Q22, GETY had 89,000 annual subscribers, with subscriptions representing 48.2% of total company revenue, compared to 44.3% in 2Q21. Management stressed 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 is good for margins. company beneficiaries. I agree with management that the 60% of total revenue that should come from subscriptions is possible given the current situation.
My model suggests a price target of around $9.30 or around 37% upside from the current stock price of $6.79. This is based on revenue growth of 7% from FY22 to FY25 and a forecast EV/EBITDA multiple of 12x.
My guidance is based on management’s fiscal year 22 and long-term organic growth guidance. Given the multiple revenue growth drivers, GETY is expected to grow mid to high single digits (5-7%) as expected. In fact, I think management could sandbag the numbers given that GETY has historically grown at teen CAGR since 2017, so there’s a good chance revenue will grow faster. On the EBITDA margin, management has moved towards a 30% margin, which I believe is very achievable as it moves to a subscription model.
As for valuation, since GETY does not have a long trading history, I looked at its closest competitor – Shutterstock (SSTK) – to compare the right valuation multiple. Over the past 5 years, SSTK has traded at an average of 12x forward EBITDA, which I also used to value GETY in FY24.
Increased competition for talent
With its high royalty rates and exclusive contracts with Getty Images and iStock, GETY is able to attract and retain top-notch content creators. If Getty’s competitors offer better compensation or offers to creators, it could hurt Getty’s content pipeline. That would mean Getty would lose customers and make less money.
Loss of content partnership
More than 80 sports organizations, including the PGA Tour, F1, FIFA, the International Olympic Committee and more, have appointed Getty Images as their official photographer or photography partner. If Getty loses even one of these strategic alliances, it could lose content and customers to other platforms and sources.
The majority of GETY’s customers are businesses of all sizes, making them vulnerable to the ebbs and flows of economic cycles. The GETY would feel the pinch if companies cut their marketing and content budgets in response to a weaker economy.
To conclude, I think GETY is worth about 37% more than its current value ($6.79 at the time of writing). I believe GETY can achieve its goals given the many growth engines supporting it, and moving to a subscription model would certainly increase the margin given less need to spend on customer acquisition costs . We are also considering a very large TAM. It reassures me that GETY can continue to grow at its own pace.