What Drove Sotheby’s Share Price to an All-time High
Sotheby’s New York, Contemporary Art Evening Auction, 2017. Courtesy of Sotheby's New York.
Sotheby’s share price hit a record high near $58 this week on a surge of investor confidence in a steadily improving art market and the auction house’s evolving strategy.
“The new management team has organized, clarified and modernized the business model,” said David Schick, lead retail analyst at Consumer Edge Research. “This is, perhaps, amplifying the benefits of a much improved art market from just 18 months ago.”
The auction market appears to have rebounded from a sluggish 2016, a year in which a recent report commissioned by Art Basel and UBS said auction sales declined 26% by value. Sotheby’s has said its worldwide auction sales for the first half of this year are up 8% over the same period a year ago.
Sotheby’s stock began 2017 at under $40 a share. It reached a record high of $57.95 on Tuesday, before closing at $57.70. It fell 1.6% on Thursday to $56.75 and closed the week at $56.88.
In May, Sotheby’s scored a publicity coup when a painting by Jean-Michel Basquiat sold for $110.5 million at its contemporary evening sale in New York. The result notched a new auction record for an American artist, with Basquiat knocking out Andy Warhol as the country’s most expensive artist.
President and CEO Tad Smith, who came to the firm in March 2015 from Madison Square Garden, hired former Christie’s executive Marc Porter in December 2015. Smith has faced skepticism from art-world insiders, thanks largely to his non-art background, although his strategy has appealed to investors. In early 2016, Sotheby’s announced the acquisition of Art Agency, Partners, a boutique art advisory firm founded by Amy Cappellazzo, the former chair of Christie’s post-war and contemporary art development, and longtime advisor Allan Schwartzman.
They brought with them close relationships to some of the art world’s best-known collectors, including Dallas-based Howard Rachofsky and the Brazilian mining magnate Bernardo Paz, who created the art park Inhotim. Art Agency, Partners, is also expanding its representation of artist estates.
Dan Moore, director of research at CJS Securities, Inc., said investors were heartened by the improvement in the overall art market and were optimistic about the house’s expansion into areas such as classic cars and fine wines, and its embrace of online art auctions. He was also encouraged by management’s decision to initiate share buybacks.
“They’ve been more aggressive in terms of putting cash to work for shareholders,” said Moore. CJS Securities, Inc. sees further upside for the auction house, with a target share price of $60 in the next 12 months.
Schick also cited “client-facing technology investments” as a promising evolution. Sotheby’s said in its most recent earnings call that online bidding and sales both jumped by double digits from the first quarter of 2016. The firm has also been investing in editorial content, attracting potential bidders through videos and articles on its website and social media engagement.
Sotheby’s was established in 1744. It is credited with hosting one of the first high-profile, glamorous auctions in 1973, when taxi baron Robert Scull sold his contemporary art collection in a much-publicized evening sale.
Sotheby’s will report its second-quarter earnings on August 3rd. Rival auction house Christie’s is not publicly traded, and is not required to report financial details, but said earlier this month its first-half auction sales were up 29% from the same period a year ago. However, Christie’s private sales, which had been an increasingly important share of auction houses’ businesses, fell by two-thirds, from $463.9 million in the first half of last year to $155.4 million in 2017, according to a recent report in the Financial Times.