Sotheby's (NYSE:BID) brought down the house Wednesday night when it blew away analysts estimates for the second quarter. The fabled auction house, which primarily competes with the privately owned Christie's, has come a long way since the dark days of 2000, when its now ex-CEO Dede Brooks was caught conspiring with Christopher Davidge, the CEO of Christie's. The resulting scandal was settled at huge cost to Sotheby's - $500 million, roughly equal to the company's entire revenues in 2005. However, the auctioneer is now back on the upswing, led by a red-hot global market for art.

Second-quarter results were impressive - revenues were up 39% to $248 million, and net income was up 68% to $71.5 million. Results were driven by a series of highly successful auctions in New York and London with sales exceeding their high estimates, crowned with the sale of Picasso's "Dora Maar au Chat" for $95.2 million. The company also instituted a dividend at $0.10 a share, its first such dividend in six years. Indeed, CEO Bill Ruprecht deservedly crowed in the press release that Sotheby's success validated its move away from lower-end, high cost auctions, usually where the value can be as little as $500. This strategy has caused Sotheby's lot volume to be cut in half over the last few years, and competitor Christie's has been happy to pick up the slack, as the company says the segment is their most profitable.

Still, this Fool thinks it was the right decision. Auctioneering is a business with very high fixed costs, with experts to be paid, art to be stored, and guarantees to be paid upfront to sellers, to obtain large consignments of art to sell. Focusing on the high-end market, though, makes sense, as this is where buyers perceive Sotheby's to add real value to the auction process as a trusted intermediary. This market is also safely insulated from online auction giant eBay (NASDAQ:EBAY), unlike the lower-value items that Sotheby's has moved away from. The proof is in the pudding, as high-end art buyers have proven reluctant over the years to bid more than a few thousand dollars over the Internet without being able to inspect the potential purchase first - a large part of the reason why prior partnerships with (NASDAQ:AMZN) and eBay failed.

Still, there are some new risks to consider now that Sotheby's is back in the black. The global art market is notoriously cyclical, and some experts worry that the market's recent surge is unsustainable. Secondly, some of the largest holders of Sotheby's stock recently exited or substantially trimmed their positions; Ariel Capital dumped its 12.3% stake in the company that it bought in 2002 earlier this year, stating that Sotheby's was now richly priced. And the Taubman family, long one of the largest holders of Sotheby's stock, cut its position last year from 22% to 12% of the company. With the stock priced at a P/E of 26, it certainly looks like investors are paying a premium for a cheery consensus.

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Fool contributor Stephen Ellis doesn't hold shares in any companies mentioned. You can see his holdings for yourself. The Motley Fool has a not-for-sale disclosure policy.