In a quarter during which Sotheby’s stock rose to an all-time high since going public in 1988—and during which the auction house shocked the market by selling a work by Jean-Michel Basquiat for $110.5 million—the house posted earnings that were down a bit from the total earned during the same quarter a year ago. In a call to investors this morning, Sotheby’s CEO Tad Smith announced that the company would post a net income of $76.9 million for the quarter ending June 30, down 14 percent compared to last year’s second quarter.
Sotheby’s attributed the modest downturn to a particularly robust second quarter in 2016, when the house witnessed unusually strong spring sales in Asia, as well as record-breaking jewelry sales, in addition to the fact that it brought back staff bonuses to their target levels, after a year of offering bonuses at a “much reduced level,” as Smith put it.
“Overall, the quarter was solid and I’m confident more growth will come both as the market improves and as our investments begin to yield returns,” the Sotheby’s CEO said on the call.
The diluted earnings per share price also dropped, falling 6 percent compared to last year’s second quarter, to $1.43.
Despite the lower returns, Smith—who was on the call with the house’s chief financial officer, Mike Goss, and, briefly, its fine art division chairman, Amy Cappellazzo—spun the news in a positive light during his prepared remarks, hitting upon talking points such as digital growth and an increase in private sales. The total number of private transactions was up 52 percent, when comparing the first half of 2017 to the first half of 2016, and stacking Q2 of 2017 against Q2 of 2016, the total for private sales increased 34 percent, to $333.8 million.
As the call segued from the staged remarks into the unscripted question-and-answer session, Smith began fielding queries regarding the state of the market in general, and whether confidence levels have been restored to a place where consignors are comfortable putting masterpieces up for sale.
“What is the mindset of the confidence of the buyers and sellers, that was your question?” Smith responded to one inquirer. “Let’s go to Amy for that one.”
“We’re seeing the market step up for what it’s very excited for and wants,” Cappellazzo said. “It doesn’t see any pause or hesitation about where it should land if the quality of the object is very, very high.”
She added that beyond the masterpiece range, works are still able to yield expected results, perhaps even more so.
“If the object is just a notch below that top quality we’re seeing a more predictable outcome in value,” she said. “Things have a greater known value and a lesser unknown value if the object is ordinary or just one of these or one of those.”
Other topics on the docket included the sharp rise in American bidding, up 26 percent from last year, allowing the Yanks to beat out Asia for the title of the biggest-spending region by dollar total. The amount of online bidders—which is meant to include both clients bidding online during live auctions, and those logging into online-only auctions—now accounts for 22 percent of all bids, up from the 13 percent just two years ago.
And there’s a plan in place to do away with the reliance on stacks of paper needed to keep records of winning bidders following sales. Scant details were offered, but Smith said he wanted to build a salesroom that can track buying habits as efficiently as the online apparatus can.
“If I’m on the phone with Amy Cappellazzo to bid on something, and I’m the underbidder, and I didn’t get it, Amy Cappellazzo has to physically load it into the system or the fact that I was an underbidder is lost,” Smith said. “If someone is buying online we immediately have it so we can automatically suggest something else or we can offer up a potential private sale.”
But digitization, Smith acknowledged, can be tough.
“It’s fascinating—one of our very bright junior executives put together a literally hilarious video that shows how complicated it is for our own internal staff, using our existing tools, to actually put catalogues online and how to load up lots,” Smith said. “The number of manual errors, and issues, and it’s just over and over and over again…”
When the process of digitizing both catalogues and the auction experience is completed, Smith said that “not only will there be fewer errors but the client service will be better and the cost structure will be lower.”
Concluding his prepared remarks, Smith said Sotheby’s is looking forward to what he hopes will be a robust fourth quarter following the traditional fallow period in the third quarter.
“There is not much to add to my prior comments,” he said, “except perhaps to acknowledge that the uncertainty in Washington, D.C., is troubling.”