Generative AI Advances And Legal Risks Will Erode Margins

Key Takeaways

• Generative AI, free imagery, and creator-driven ecosystems are eroding Getty's pricing power, shrinking its addressable market, and undermining top-line revenue growth.
  
• Heightened legal and compliance risks, especially from AI content, are driving up operational costs and threatening long-term profitability.
  
• Recurring subscription growth, exclusive content, AI integration, and a potential merger position the company for improved margins, customer retention, and sustained long-term revenue expansion.

Catalysts

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

• The widespread advancement of generative AI continues to commoditize visual content, undermining Getty Images' competitive advantage and likely leading to further erosion in demand for premium, paid stock image services and weakening top-line revenue growth over the long term.
  
• The growing adoption of free and Creative Commons-licensed imagery exerts sustained downward pressure on pricing, reducing Getty's ability to command premium fees and contributing to declining revenue per image and compressing overall net margins.
  
• Ongoing creative democratization through smartphone camera ubiquity and affordable editing tools empowers businesses and individuals to easily generate their own multimedia, resulting in a shrinking addressable market for Getty's licensing offerings, which will hamper future earnings and revenue expansion.
  
• Increasing legal and compliance challenges-including growing complexity in identifying, policing, and litigating intellectual property claims associated with AI-generated content-are leading to elevated SG&A expenses and threaten to decrease net margins over time, as noted by rising legal spend around Stability AI litigation.
  
• Platform disintermediation, with advertisers and content creators shifting away from centralized stock photo platforms and towards social media and creator-driven ecosystems, continues to erode Getty's market relevance and is expected to limit market share gains and restrict long-term earnings resilience.

Getty Images Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Getty Images Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Getty Images Holdings's revenue will grow by 1.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -12.2% today to 8.5% in 3 years time.
• The bearish analysts expect earnings to reach $83.1 million (and earnings per share of $0.19) by about August 2028, up from $-115.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, up from -6.5x today. This future PE is lower than the current PE for the US Interactive Media and Services industry at 13.9x.
• Analysts expect the number of shares outstanding to grow by 1.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Getty Images Holdings Future Earnings Per Share Growth

Risks

• The continued strong growth in annual subscription revenue, which now makes up over half the company's total and features a high retention rate of 93.4%-with premium access revenue retention rising back above 100%-suggests robust and recurring top-line revenue support that could drive earnings higher in future periods.
  
• Getty Images is securing multi-year content deals that include AI rights for existing corporate customers, showing the capacity to monetize new, high-value offerings in emerging content segments, supporting both future revenue growth and improved gross margins.
  
• Premium editorial coverage and exclusive partnerships with major sports, entertainment, and news events contribute to a unique content moat and recurring demand from enterprise clients, which helps to stabilize overall revenue performance and protect net margins.
  
• Ongoing investments in AI-powered content services and integration into core subscription offerings, such as iStock, enhance the customer experience and boost value per subscriber, increasing the likelihood of improved customer conversion, retention, and expanded lifetime value, which will positively affect long-term recurring revenue.
  
• The prospective merger with Shutterstock, if completed, could provide meaningful opportunities for cost synergies, expanded distribution, and content library consolidation, which would likely improve operating leverage, profitability, and potentially support a higher share price over the long term.

Valuation

• The assumed bearish price target for Getty Images Holdings is $1.85, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Getty Images Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.0, and the most bearish reporting a price target of just $1.85.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $982.0 million, earnings will come to $83.1 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $1.81, the bearish analyst price target of $1.85 is 2.2% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.