TheStreet.com (ticker: TSCM) announced that it is shutting down its institutional research business, Independent Research Group ("IRG"). Analysis followed by text of the press release:
IRG generated $4.5 million in revenue and incurred $10.3 million in expenses in 2004, so shutting this business is an obvious move to improve the company's profitablility.
But it doesn't leave TSCM in a strong position: the company generated only $8.9 million in revenue in Q1, missing consensus estimates of $9.65 million. The majority of that revenue came from subscriptions ($5.4 million), but subscription revenue was flat year over year.
TSCM announced in January that it was putting itself up for sale, but so far there have been no takers. Why not?
- TheStreet.com isn't making money. Selling IRG will help here, but the company just isn't a big cash generator.
- Potential acquirers could view the stock as expensive: the consensus estimate for TheStreet.com's 2005 EPS is currently $0.02 (before the closure of IRG), placing the stock at a vast forward P/E.
- TheStreet.com's brand seems to be overly dependent on founder James Cramer.
- The company lost at least one high-profile contributor and revenue generator - Herb Greenberg - to CBS MarketWatch during 2004.
- TheStreet.com doesn't seem to be a very attractive bet on the growing Internet advertising market, since it generated only $2.1 million from advertising in Q1 versus $5.4 million from subscriptions.
Closing IRG should help the stock. It will boost the company's profitability and raise its attactiveness as an acquisition target. But the key question remains: who will want to acquire this company when the large majority of its revenue comes from a no-growth subscriptions business?
Full press release:
TheStreet.com Announces the Closing of Its Research Brokerage SubsidiaryTSCM chart below.
NEW YORK--(BUSINESS WIRE)--June 28, 2005--TheStreet.com, Inc. (NASDAQ: TSCM), a leading provider of financial commentary, analysis, research and news, today announced the closing of business operations of its wholly owned subsidiary, Independent Research Group LLC (IRG Research), which operates its securities research and brokerage segment.
IRG Research had net revenue in 2004 of $4.5 million, which represented 12.7% of TheStreet.com's total net revenue for the year. Expenses for the year totaled $10.3 million, which represented 27.3% of TheStreet.com's total expense. IRG Research currently employs approximately 40 people located primarily at its principal office at 44 Wall Street, New York, N.Y.
"It is never easy to make a decision of this magnitude," said Thomas J. Clarke Jr., Chairman and Chief Executive Officer. "We applaud what was accomplished by the entire IRG team. Unfortunately, the firm could not grow fast enough to meet our profitability timetable. And with the brokerage industry facing some of the most far reaching regulatory changes within the last 30 years, including SEC rulings regarding the use of soft dollars and possibly the unbundling of research and trading costs, we could not see the economics working in our favor without substantial additional investment and a change to the business model we started with in 2002. These significant changes would require commitments the Board and I were not comfortable making."
The Board and management of TheStreet.com remain focused on directing their energies towards the Company's already profitable electronic publishing business to continue the building of a profitable total enterprise that delivers shareholder value.
The Company will address additional specific financial and other questions during its second quarter earnings conference call in late July.
About TheStreet.com, Inc.
TheStreet.com, Inc. (NASDAQ: TSCM) is a leading provider of investment commentary, analysis and news. Founded in 1996, the Company completed its initial public offering in May 1999. On the Internet, its premium, subscription-based Web site, "RealMoney.com" is accompanied by the professionally oriented subscription sites, "Street Insight," "RealMoney Pro Advisor," and the free, flagship site, "TheStreet.com." The Company also produces a suite of subscription services for use by professionals and self-directed investors, each designed to help a specific segment of the investing public make better-informed investing and trading decisions.
Statements contained in this news release not related to historical facts may be deemed forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties (described in the Company's SEC filings), which could cause actual results to differ materially.
Tina Lewis, 212-321-5256
SOURCE: TheStreet.com, Inc.
Full disclosure: at the time of writing I'm short TSCM.
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