MEMORANDUM
TO: Clark Hansen, CEO, AMDP
FROM: Shan Lu, Research & Development Analyst, AMDP
DATE: July 11, 2018
SUBJECT: An Exceptional Investment Opportunity in Heritage Auction, Inc.
After extensive research, I, as a research & development analyst at AMDP, highly recommend Heritage Auctions, Inc. as an exceptional investment opportunity. As the world’s largest collectibles auctioneers, Heritage Auctions not only shows a strong financial performance in the past five years but also undertakes many social responsibilities. It enhances environmental sustainability by shifting most of its business online to reduce the energy consumption along with its geographical expansion. Below I will present a comprehensive analysis of Heritage Auctions and show how its practices align with our Investment Standards.
AMDP Investment Standards
Triple Bottom Line
A triple bottom line measures a company’s degree of social responsibility, environmental impact, and economic value. The following three P’s represent the three measurements respectively:
People: a measurement focuses on the fair treatment of employees and off-site labor, as well as enacting favorable practices in the communities where companies conduct their businesses (“Triple”).
Planet: a measurement concentrates on companies’ implementation of sustainable practices and their reduction of negative environmental impact (“Triple”).
Profits: a measurement shows companies’ profitability (“Triple”).
Corporate Social Responsibility
Corporate social responsibility is a self-regulating business model that helps a company be socially accountable – to itself, its stakeholders, and the public (“Corporate”). By taking corporate social responsibility, companies can be conscious of the impact they are having on all aspects of society including economic, social, and environmental (“Corporate”).
Social Enterprise
A social enterprise is an organization that is directly involved in the sale of goods and services to a market, but it also has specific social objectives that serve as its primary purpose. Social enterprises are not volunteer organizations, and they can be registered as for-profit or non-profit. Profits are principally used to fund social programs (“Social”).
Carbon Footprint
A carbon footprint is an estimate of the climate change impact of all human activities (Clark). It is typically calculated as the total amount of greenhouse gases produced to directly and indirectly support human activities, usually expressed in equivalent tons of carbon dioxide (Rohrer). Carbon dioxide (CO2), along with other greenhouse gases such as methane and ozone, is the main cause of global warming (Rohrer). If we want to contribute to stopping global warming, it’s essential for us to check and reduce our carbon footprint.
Company Overview
Heritage Auctions, Inc. operates an auction house for antiques and collectibles in the United States (Heritage S&P). It specializes in art, antiques, collectibles, and estate auctions (Lifschutz). It also offers appraisal services, charity services, museum and institutional services, and corporate art services (Heritage S&P). The company was founded in 1976 and is based in Dallas, Texas with an additional office in London, United Kingdom (Heritage S&P).
Heritage Auction, Inc. is the largest collectibles auctioneer and third largest auction house in the world, as well as the largest auction house founded in the U.S. (Heritage). It is the undisputed internet leader with more than 500 experts who offer a variety of services to individual and institutional clients worldwide (Heritage). In September 2016, Heritage Auctions reached an online milestone of one million online bidder members and continued to grow at a rate of about 5,000 new members per month (Cohen). The members stem from the United States and 185 other countries worldwide with an increasing number of members from fast-growing areas in Europe, Asia, and Latin America (Cohen).
Heritage Auctions dominates both online antiques and collectibles sales industry and online art sales industry with market shares of 16.7% and 25.0% respectively (Cohen; Lifschutz). In 2016, it reported $850.0 million in total revenue (Cohen). The company is expected to generate over $900.0 million in total revenue in 2018, and its revenue in online antiques and collectibles sales is estimated to increase at an annualized rate of 0.7% over the five years to 2018 to reach $378.0 million (Lifschutz). As a large segment of 40% of the company’s revenue, Heritage’s online art sales are expected to generate $99.7 million in industry-relevant revenue, which represents an annualized growth rate of 102.9% over the five years to 2017 (Cohen).
Inside Review
Mission & Values
Heritage Auctions, Inc. aims to be the world’s most trusted and efficient marketplace and information resource for owners of fine art, jewels, rare collectibles and other precious objects (Heritage). They believe deep, unbiased information can and should be available to all parties, transactions made more transparent, trading friction reduced, and the learning curve made less steep and less expensive for new collectors and sellers (Heritage). They highly value integrity, transparency, expertise, efficiency, innovation, and long-term perspective (Heritage).
Social Responsibility
The employees of Heritage Auctions and HA.com contribute to many local and national charities in mainly three ways:
Community Services: They provide community services for 21 organizations such as Dance for the Planet, Century Bike Ride, and Titus (Heritage).
Fundraising Auctions: They conduct fundraising auctions for 12 selected charities such as Michael J. Fox Foundation, Dallas CASA, and Texas Scottish Rite Hospital (Heritage).
Auctioneers for Charity Auctions: They provide auctioneers Mike Sadler and Kathleen Guzman for charity auctions held by 19 organizations such as Dallas Opera, NY Choral Society, and Housing Works (Heritage).
Outside Recognitions
Environmental Impact
Founded in 1976, Heritage Auctions operates auction houses in various places all around the world, which requires a very high level of capital intensity. In the early 2000s, the company established the HA.com online platform for e-transaction, which significantly reduced its capital requirements. For every dollar spent on labor, it spends only $0.18 on capital, which shows the low costs and the low energy consumption involved with developing and maintaining an e-commerce website, as opposed to traditional brick-and-mortar operations (Cohen).
Fairness Opinion
Heritage Auctions, Inc. is also constantly involved in social events by providing fairness opinions or public appraisals for many popular objects. In 2016, Heritage Auctions valued the personal collection of Shirley Temple Black (Clarke). In 2018, specialists for Heritage Auctions, Margaret Barrett and Carolyn Mani, evaluated Zsa Zsa Gabor’s estate in Los Angeles (Clarke). The company’s social involvement as a third-party evaluator effectively proves its mission to promote art literacy, trading transparency, and social justice.
Industrial Trend
Since the company makes online auctions possible through HA.com, many auction rooms are sparsely attended these days (Grant). As a dominant player in the industry, Heritage Auctions would profit in an even larger scale because of its technological development aiming to promote the convenience and safety for online users.
Final Recommendations
Overall, Heritage Auctions, Inc. is a great company to invest in for AMDP.
¨ For social responsibility, the company participates in multiple community services and charities to pay back society.
¨ For environmental impact, Heritage Auctions strategically shifts its business online to reduce its high capital investment and negative impact on the environment.
¨ For profitability, Heritage Auctions is a dominant player with the largest market share within the industry, and the prosperous external environment of the industry also indicates a huge growth potential in the future.
If you have any further questions, don’t hesitate to contact me.
Best regards,
Shan Lu
Shan Lu
AMDP Research & Development Analyst
Work Cited
“Corporate Social Responsibility (CSR).” Investopedia. Web. Accessed 29 Jun. 2018.
“Social Enterprise.” Investopedia. Web. Accessed 29 Jun. 2018.
“Triple Bottom Line (TBL).” Investopedia. Web. Accessed 29 Jun. 2018.
Clark, Duncan. “What’s a carbon footprint and how is it worked out?” The Guardians US., 4 Apr. 2012. Web. Accessed 29 Jun. 2018.
Clarke, Katherine. (2014, Feb 1). “In the Market for Nostalgia.” Wall Street Journal (Online). Retrieved 29 Jun. 2018, from ProQuest database.
Cohen, Anya. “IBISWorld Industry Report OD5070: Online Art Sales in the US.” IBISWorld. Sept. 2017. Web. Accessed 10 Jun. 2018.
Grant, Daniel. (2014, Jun 15). “Why auction rooms seem empty these days; bidders aren’t lacking, they just phone it in or go online.” Wall Street Journal (Online). Retrieved 30 Jun. 2018, from ProQuest database.
Heritage Auction. S&P Capital IQ, n.d. Standard & Poor’s NetAdvantage. Web. Accessed 28 Jun. 2018.
Heritage Auctions.“About Heritage Auctions.” Web. Accessed 29 Jun. 2018.
Lifschutz, Marisa. “IBISWorld Industry Report OD 5071: Online Antiques & Collectibles Sales in the US.” IBISWorld. Jan. 2018. Web. Accessed 30 Jun. 2018.
Rohrer, Jürg. ABC of Awareness: Personal development as the meaning of life.Niederurnen: UTD Media, 2007.
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