The markets are volatile right now because investors are concerned about inflation and rising interest rates, but the volatility is a great opportunity to find undervalued investments.
One value opportunity that's caught my eye recently is Getty Images (GETY, Financial), a stock photo agency. The company was founded in 1995 by Mark Getty and Jonathan Klein and started with just one image. It now has an extensive collection of photographs, illustrations, video footage and audio clips that are available for purchase or license for commercial use.
The company has been growing steadily with strong financial discipline, which is rare to find these days. It has also been investing heavily in new technologies, and that has helped it increase its revenue.
In its very brief publicly-traded history (it had its IPO just this past July), Getty Images initially traded at very high price multiples. But macroeconomic headwinds have pushed the stock down to a much more reasonable level. Given the company's outlook for the rest of 2022, this stock could shape up to an attractive value opportunity in my view.
The second half is shaping up to be great
The market has seen a lot of turmoil this year. Even stocks with the best defensive characteristics haven't been spared. However, companies can help slow down their share price declines by recording impressisve earnings results. Getty Images did just that in its second quarter, and it is also projecting a healthy outlook for the rest of the year.
For its second quarter, the company reported a revenue increase of 4.1% to $233.3 million from the year-ago quarter and an increase. Editorial revenue was up by 15%. The subscription business also did well. Net income clocked in at $38.7 million, up from $12.5 million in the prior-year quarter. The net income margin increased to 16.6% from 5.6%, which highlights the company's discipline regarding overhead costs. Top-line growth is great, but margin improvement is an excellent way to assess the management and whether the company is capable of achieving bottom-line growth.
The company expects full-year revenue to be between $950 million and $980 million, representing a healthy increase over the 2021 fiscal year figure of $919 million.
Growth is not expected to halt any time soon. One of the main reasons is the increased demand for video mediums, which puts pressure on media companies to have a presence across various distribution platforms. Technavio predicted that the digital content market will grow by $594.11 billion between 2021 and 2025, with an average growth rate of 13.40% per year during the forecast period.
With the increasing cost of marketing and a rise in do-it-yourself marketing projects, many businesses have created their own creative marketing teams to control the volume and frequency of advertising. This means that Getty Images has a chance to expand its reach and receive a bigger market share.
Getty Images is investing heavily in corporate market and re-assessing its incentive structure to help achieve sales goals. In addition, Getty Images is increasingly ramping up its efforts in new products for customers and has implemented various changes to its services. This includes offers for Media Manager, Custom Content and customer service. All of this means Getty Images is in a great position to grab a bigger slice of the market.
Initiatives and partnerships bolster business
Earlier this year, Getty Images launched its Visual GPS Insights tool, which gives valuable information about what clients search for in images. Everybody needs data nowadays to locate patterns or search for information. This new tool offers complete details to help customers with marketing and research. Getty claims it will bring more traffic and business to websites and holds the potential to become a valuable income stream in the future.
The company recently renewed its partnership with Amazon (AMZN, Financial). The e-commerce giant will allow Getty Images to be used in its voice-activated Alexa platform and on Amazon's Fire TV software stack.
Over 80 sporting organizations, including the PGA Tour, NBA and the F1, have trusted Getty Images as their official partner. These strong partnerships create confidence in the Getty brand, which is key to bolstering business and gaining new customers.
Takeaway
Getty Images is a rare company that is doing well this year, and it has even estimated that results for full-year 2022 will be solid. It has a huge total addressable market that is growing along with the do-it-yourself mentality among corporate advertising teams, which can help it take market share from the big advertising companies. It also looks undervalued in my view given its strong growth prospects and disciplined management strategy. The price-earnings ratio is a little high on paper at 41.81, this metric becomes much more encouraging when we consider that the company only recently went public. In other words, unlike many companies that go public before they are profitable, Getty Images has a higher chance to impress investors with real results. Broader macroeconomic headwinds have pushed the stock down, but that is how value opportunities are born.
