Web 2.0 Industry De-Merger of Getty Starting To Be Factored In (GYI)

Getty Images (NYSE:GYI) is seeing shares trade up in after-hours activity as some fears of imminent implosion from Web 2.0 start-ups eating its dominance may be getting priced in based on its forward guidance.

The company posted earnings at $0.47 EPS before items and $0.43 after on revenues of $209 million.  Analysts were expecting $0.43 EPS on $209.47 million.  The implied guidance for the fourth quarter of 2007 is $0.48 EPS on revenue of approximately $210 million for the fourth quarter of 2007.  It looks like analysts expect $0.53 EPS on $213.1 million revenues.  It is actually going farther out on a limb: For 2008, the company expects revenue of approximately $900 million; analysts are looking for just under $890 million for the quarter, although there are higher estimates out there.

The company has expanded its multi-site and multi-business strategy.  Its commercial music license operation was entered and it has launched its low-resolution web use model.

Back when this stock was at $50-ish in May, 24/7 Wall St. sent subscribers our own playbook on how to profit off of what was a nearly certain de-merger equivalent force that was going to cause more than just trouble for Getty.  Our target was achieved, but this kept falling much farther than we expected in the relative time frame.  That was when we took the wait and see attitude, and from an objective standpoint it seems like some of the forces against the company are being priced in. 

Shares are up almost 6% as traders accept lower numbers on the hopesthat the worst is behind the company.  This may make the old Value Stock versus Value Trap a more solid argument.  We aren’t 100% convinced yet, but our own expectations have already been seen.  We may address this one again, but 24/7 Wall St.’s first call was adequate for now.

Shares closed up 0.35% at $28.35 today, but they are up almost 6% at$30.00 as of the last print in after-hours trading.  The 52-weektrading range is $26.26 to $57.28.  There will probably be many analystcalls in the morning.

Jonathan Klein, co-founder and chief executive officer: "We havemade tremendous progress expanding beyond our traditional creativestills imagery business on our way to becoming a complete digital mediacompany. During the last few months, we have re-engineered search withthe launch of the new gettyimages.com, cemented our leadership positionin the fast growing entertainment imagery business, expanded ourmulti-media and editorial footage offerings, launched an innovative newweb-resolution product, entered the music industry, and launched ournew Soundtrack digital music service. We are seeing tremendous growthin many parts of our business, have excellent potential in largeaddressable markets for music licensing and consumer, and are realisticabout the challenges as we lead our industry forward through a time ofchange and opportunity."

Look for companies like Getty Images and others in related spaces on the web and in print to make appearances in our "Old Media/New Media" subscriber letter.

Jon C. Ogg
November 1, 2007

Jon Ogg can be reached at [email protected]; he produces the Special Situation Investing Newsletterfor buyout speculations, spin-offs, restructurings, reorganizations,and IPO’s.  He does not own securities in the companies he covers.