AI Services And Custom Content Will Drive Future Customer Engagement

Key Takeaways

• Strong subscription growth and editorial content demand during major events are driving significant revenue and subscriber increases.
  
• Strategic partnerships and new offerings, including Custom Content and AI services, are boosting customer engagement, revenue potential, and market expansion.
  
• Getty Images faces profitability challenges due to declining free cash flow, editorial revenue growth uncertainties, customer retention issues, heavy debt load, and currency fluctuation impacts.

Catalysts

Offers creative and editorial visual content solutions in the Americas, Europe, the Middle East, Africa, and Asia-Pacific.

• The subscription business is showing strong growth, with subscribers increasing by nearly 50% compared to the previous year, which is expected to continue driving revenue growth as subscriptions now account for more than 50% of Getty Images' revenue.
  
• Increased demand for editorial content during major events, such as the Paris Olympics and the U.S. election, has led to a higher allocation of revenue to editorial content within Premium Access subscriptions, which could positively impact revenue in the presence of similar future events.
  
• Strategic partnerships and integrations, like those with Sony Pictures for AI and the renewal with Canva and Squarespace, are expected to enhance customer offerings and drive further revenue growth through higher engagement and cross-selling opportunities.
  
• The expansion of Custom Content offerings to global brands indicates an opportunity for revenue growth and margin improvement as Getty leverages its unique content capabilities to attract and retain high-value customers.
  
• Adoption of generative AI services, though currently in early stages, shows potential for additional revenue streams in 2025 as new customers engage with these offerings, creating opportunities for cross-selling and increasing overall customer base.

Getty Images Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Getty Images Holdings's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.9% today to 7.0% in 3 years time.
• Analysts expect earnings to reach $70.5 million (and earnings per share of $0.16) by about December 2027, up from $54.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $89.6 million in earnings, and the most bearish expecting $34.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 46.1x on those 2027 earnings, up from 19.5x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 25.4x.
• Analysts expect the number of shares outstanding to grow by 2.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.89%, as per the Simply Wall St company report.

Getty Images Holdings Future Earnings Per Share Growth

Risks

• The decline in free cash flow, resulting in a deficit of $1.8 million compared to the previous year, along with higher cash interest expense, indicates potential challenges in profitability and liquidity management. This can impact net margins.
  
• Getty Images' editorial revenue growth benefited from unique conditions such as the Hollywood strike comparisons and a major event calendar, which may not be sustainable, potentially affecting consistent revenue streams in the future.
  
• Despite strong subscription growth, the decline in annual subscription revenue retention rates from 94.5% to 92.2% highlights potential customer retention issues, particularly among smaller e-commerce subscribers, which may impact overall revenue stability.
  
• The company's heavy debt load, with the net leverage ratio remaining at 4.2x and significant interest expenses, poses a risk to earnings and financial flexibility, especially if interest rates rise or revenue growth slows.
  
• Currency fluctuations significantly impact Getty Images' financial results, with revenue and EBITDA margin shifts partly attributed to exchange rate changes. This exposure can introduce volatility in revenue and earnings.

Valuation

• The analysts have a consensus price target of $5.61 for Getty Images Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.7, and the most bearish reporting a price target of just $3.75.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.0 billion, earnings will come to $70.5 million, and it would be trading on a PE ratio of 46.1x, assuming you use a discount rate of 9.9%.
• Given the current share price of $2.57, the analyst's price target of $5.61 is 54.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.