Sothebys (NYSE:BID) posted revenue of $108 million for the third quarter and earnings per share came in at ($0.44), both numbers above the consensus estimate of $70 million and ($0.47) respectively. The surge in revenue was fueled by an unusually high level of dealer related and private sales revenue, which cannot be estimated in a small seasonal quarter for the company, according to a report by analysts Rommel Dionisio and Kurt Frederick from Wedbush.
However, increase in revenue was counterbalanced by a rise in salary and G&A (General and Administrative expenses) mainly driven by expansion plans in China and Hong Kong.
Sothebys expands in China, Hong Kong
Fall auction sales came in strong for Sothebys (NYSE:BID) with a quarter to date total auction value rising 48% from last year. Last month’s Asia Art Week auction value climbed 105% to $538 million, indicating an increasing fondness for art in China. The company has also made significant investments in expanding into Hong Kong and mainland China over the past few years. Last week, Impressionist & Modern Art sales totaled $348 million, an increase of 71% over the last year.
Analysts suggest that there will be an increase in the wealth all over the world, but the increase will be more in Asia and Middle East, which will strengthen demand in the art auction market for the forthcoming quarters. Shares will trade around 20% premium to the peer group average.
Fewer potential catalysts
Sothebys (NYSE:BID) will feature an Andy Warhol in its contemporary art section this week, which according to some will stand to the level or may even outpace last year’s The Scream by Edvard Munch for the world record at auction, and can benefit the art market overall. The report states that, towards the end of the month, data points will not be available in the art market until around February 2014, and therefore create “fewer potential catalysts” for Sothebys shares.
Analysts have increased their fourth quarter revenue estimates to $319 million from $307 million, but have reiterated the above consensus $1.46 EPS after noticing the increased salary expense in Q3.
Analysts have given an Outperform rating to Sothebys (NYSE:BID) and have raised the price target from $54 to $58.