's Earnings: Will An "Intimate Address" From Jim Cramer Fix its Problems?

Oct.26.06 | About: TheStreet, Inc. (TST)'s (TSCM) Q3 results and guidance weren't appreciated by investors: the stock fell almost 15% in trading today.'s subscription revenue fell 1% sequentially in Q3 (excluding its acquisition of Weiss Ratings), versus growth of 10% in Q2 and 17% in Q1. And year-over-year, subscription revenue rose 43% in Q3, versus 57% in Q2 and 43% in Q1. More important, new subscription orders rose only 15% year-over-year, as did page views. In other words: the Cramer Mad Money effect that has benefitted TSCM's stock seems to be waning.

In the bearish commentary I've written on the stock (I'm short TSCM), I've highlighted the company's growing dependence on Jim Cramer and the risk that's revenue growth will stall once the "Mad Money Effect" becomes annualized and therefore reflected in year-ago numbers.

TSCM CEO Tom Clarke outlined two responses to the disappointing subscription numbers on today's conference call: first, boost the subscription product with videos of Jim Cramer, and second, refocus the company on non-subscription revenue, namely ad revenue on free content.

As you read this in his own words below, ask yourself whether TSCM is truly starting to wean itself off the "Mad Money effect":

Tom Clarke: analyzing our subscription business, we are disappointed with our third quarter performance as it did not meet expectations. One reason is the company does not employ steep discounts through its subscription services, a tactic publishers traditionally use in the summer months. As a result, our revenue per subscriber increased to 345 from 330 without any contribution from the ratings business.

The real question is, do I think this is a long-term trend? I do not, but as I have mentioned in the past, this will be a slower growth revenue stream than our advertising one. We are being proactive in our measures to reinvigorate this side of the business. I will give you a specific example.

To more actively engage our subscribers, we are making enhancements to our current services. In September, we introduced a free video component into our Action Alerts Plus offering, where once every quarter, Jim Cramer makes an intimate address to the subscribers from his office at The quarterly address includes a portfolio review with methodology behind stock picks, as well as an overview of the market and where it is heading. This will be an enhancement we make in all of our subscription alert products.

We recognize the value in continually enhancing our services as well as adding variety through bundling and introducing new offerings, both of which you can expect to see more of in the near future.

However all of the above does not mitigate my disappointment with the current quarter subscription business. This is why we are transitioning from slow growth to high growth with our strategy of penetrating the mass market with an advertising supported model...

And later in the Q&A:

Frank Gristina - Avondale Partners

Good morning. Thanks for taking my questions. In terms of the subscribers, obviously it seems like you had net losses in subscribers for the quarter. Tom, what do you think was a principal driver of that? Was it just contracts that probably came in as Cramer’s popularity was really taking off and you were not able to convert those, or were there any products that were cancelled that had subscribers? What are your thoughts? How do you improve that? In particular, can you give us the actual number of subscribers that you lost, the net number?

Thomas J. Clarke

You have a bunch of questions wrapped up there, so let me try to address them one by one.

I think the first question is an overriding one about the subscriber business in general and the net loss, if there is anything I think you could point to and say that -- I think one, you have a little bit of seasonality in the third quarter, as we have talked about in the past. But look, I am not a person who likes to make excuses for that. I think that there are a couple of things that were out there. One, I think there was a -- while the market was up, I think the quarter started out a little shaky, and I think what happened was that put off some purchase decisions that typically would have happened earlier in the quarter, and then did not happen in the quarter at all.

Two, I think we could do a better job in our performance in some of our products. I think we did not perform up to where we thought we should, and I think that always plays a factor into it, so we are looking to improve that and taking a hard look on where that is.

I think we have to do a better job in bringing more people into the funnel, as we have talked about many times. We use content as a driver of traffic and ultimately, into our free site, where we then use additional paid content as a teaser to get them to buy product.

I think we have to do a better job in looking at how we utilize those marketing activities, and I think as Jim had mentioned, we have a bunch of initiatives in there that do that.

Frank Gristina - Avondale Partners

Thank you. That is helpful. So it sounds more like it was not a renewal issue, but a gross add issue.

Thomas J. Clarke

I would believe it is a gross add issue. The other thing I think, and I do not want to -- I am the guy who does not want to talk about things that are on to the -- I think that one of the things that is out there is that with the Weiss acquisition, now that we have put Ratings on the site for free, for those individuals who do want to get a more detailed research report, we are going to make that available for a fee and a one-off type of basis, which is the first time that we have actually looked at providing content on a one-off kind of menu.

I think that as we get into that, that may provide other opportunities for us to look at selling information that way that we have not done in the past, and that would fall in the subscription category.

Frank Gristina - Avondale Partners

Tom, the last question, or the last part of that question was what was the actual -- you used to give a net add number.

Thomas J. Clarke

The net loss was about 5,000. One thing, Frank, and I am glad you brought it all up, because I think as investors have questions, we should answer them all as best we can. I think the overriding thing that I said, and I said I am disappointed with the subscription business, but the strategy, and it is one we have talked about for a few quarters now, is the fact to get out of -- not get out of, but certainly look at putting our resources behind faster growing segments of the business, and we certainly think advertising does that, and we think the acquisition of Weiss kind of is the springboard to do that.

As you heard Eric talk about in the call, the trend we are seeing in the beginning of October already, in terms of page views and stuff, we are showing a 20% gain already, so we think that this is a strategy we have articulated over time, but we think it is actually starting to come to fruition.

Excerpted from the full transcript of's conference call.

Full disclosure: Short TSCM at the time of writing.