Saatchi Art: “A cash-burning e-commerce venture with no proven business model”

In an entertainingly withering Market Note published Thursday October 27, Skate’s performs some fascinating analysis on the numbers underlying Demand Media’s purchase of Saatchi Art (formerly Saatchi Online) in August of this year.

Discounting Saatchi Art as focussing on “low-end contemporary art and prints” Skate’s takes its numbers from Demand Media’s recent financial disclosure on Saatchi Art – itself published against a background of Demand Media’s “tanking” share price.

As a warning to any investor rushing into the overheated art startup market, Skate’s finds that the rate of cash burn in Saatchi Art was $4.2m in the first six months of 2014 and that Saatchi Art’s selling shareholders sold the company “as an alternative to putting more cash into the loss-making business […] losing on average 75 cents on each dollar invested on a cash basis.” (If Demand Media’s share price recovers, they’ll recoup their investment.) Questioning Saatchi Art’s fundamentals, the note finds that although the business’s top line grew by 142% to $2 million in 2014, its losses grew at a faster rate to $4 million.

It’s perfectly possible that Skate’s forensic analysis may miss the potential return of Saatchi’s plans to build the premier global contemporary art sales platform. Demand Media certainly hopes so, and time will tell. The Market Note concludes, with heavy irony:

Given these numbers, Demand Media clearly has a lot of faith in Saatchi Art. Skate’s is thrilled to see the turnaround miracle.

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