Lost in all the commotion caused by Daniel Loeb’s initiating a proxy fight for seats on Sotheby’s board was the reaction to yesterday’s earnings call. Sotheby’s stock fell as much as 7% in trading today. Philip Boroff explains why on Artnet’s news site. Boroff draws out one particular issue that has not gotten enough attention: the long-term decline of Sotheby’s commission margin. When asked, CEO Bill Ruprecht demurred that he could give no timetable for when the trend my reverse itself.

It is worth noting that Loeb raised this issue in his letter to Ruprecht but has offered no public indication that he has a solution for the eroding margins. Here’s Boroff on the matter:

Sotheby’s fourth-quarter net income was $1.30 per share, short of the $1.41 consensus of analysts surveyed by Bloomberg. Full-year earnings rose 20 percent to $130 million, but lagged that of 2011, 2010, and 2007, even as art prices for marquee works soared to record levels. […]

Sotheby’s auction commission margin, a closely watched measure, fell for the fourth consecutive year. It took in $15.90 for every $100 of auction sales in 2013, down from $16.30 in 2012 and $20.70 in 2009. While Sotheby’s private sales have grown, auction commissions still represent 81 percent of revenue.

(If you look closely at the chart of Sotheby’s stock above, you’ll notice a surge in buying that followed Loeb’s proxy fight announcement. But the rise is volume and price quickly faded suggesting Loeb’s campaign is far from convincing and few are eager to buy shares to vote him in.)

Loeb Presses Case Against Sotheby’s (Artnet News)