Principal segment overview
The Principal segment of Sotheby’s (BID) handles the activities of Noortman Master Paintings. Noortman Master Paintings sells artwork from its inventory directly to museums and private collectors. The dealer occasionally acts as a broker for art sales and private purchases.
The Principal segment also sells retail wines and artwork that the company has purchased opportunistically. Plus, the segment oversees the activities of equity investee Acquavella Modern Art.
Under some circumstances, this segment offers secured loans to some dealers in conjunction with the Finance segment. In these situations, the Principal segment provides the loan and obtains a partial stake in the property being purchased. After the sale of the property, loan repayment takes place. Then, Sotheby’s and the art dealer share any loss or profit according to each party’s ownership interests.
Principal segment revenue
The Principal segment more than doubled its revenue to $70 million in 2014 from $30.6 million in 2013. This was mainly due to the sale of property that a prospective consignor acquired as an alternative to the provision of an auction guarantee by the Agency segment. At present, the Principal segment accounts for 7% of the company’s total revenues.
The company’s annual report noted that “The global art market is influenced over time by the overall strength and stability of the global economy, the financial markets of various countries, geopolitical conditions, and world events, all of which may impact the willingness of potential buyers and sellers to purchase and sell art.”
Investors who wish to gain exposure to auction house stocks should consider the Vanguard Total Stock Market ETF (VTI). Sotheby’s has an exposure of 0.01% in this ETF. The company also makes up 0.14% of the iShares Russell 2000 ETF (IWM).
In the next part of this series, we will look at how Sotheby’s has dealt with activist pressures in the past.