"They [shareholders] have forgotten also that they are owners of a business and not merely owners of a quotation on the stock ticket."
- Benjamin Graham, 1932
Ladies and Gentlemen:
Recently, TheStreet, Inc. ("Company") made several significant announcements that we believe will have a positive impact on shareholder value creation.
Reinstating the Dividend
The Company announced a quarterly cash dividend, at a $0.10/share annual rate, which will result in approximately $3.8 million of the Company's cash being paid to shareholders. Dividends are paid not only on common stock but also on the Series B Preferred Stock of the Company, on an as converted basis. Accordingly, approximately $3.4 million will be paid to common stockholders, while almost $390,000 will be paid to the Company's Preferred Stockholder, Technology Crossover Ventures. We note management's dividend-price decision was the maximum limit to be paid without Preferred Shareholder consent, therefore we applaud the Board for taking a positive step in addressing our advocacy for the common shareholder. This action should continue to drive the common share value upward and potentially make the stock interesting to a new class of investor. It also suggests to us that the Company expects 2014 to be positive from a cash flow and earnings perspective. As shareholders, we hope this proves to be the case.
Jim Cramer's New Contract
In November, the Company announced it entered into a new long-term contract with Jim Cramer. Although we have been critical of granting Mr. Cramer a significant increase in compensation without a commensurate increase in accountability for creating shareholder value, we recognize the elimination of the uncertainty surrounding his tenure with the Company could have a palliative effect on the market. As we stated in our December 17, 2013 letter, the time for excuses has passed.
The total annual, minimal cash cost of Mr. Cramer's agreement is $2.8 million and should go even higher when he delivers on his value creation. This is approximately $1.3 million more per year than his cash compensation in 2012 (the latest full year information available). We can only surmise that this rich compensation package points to the Company's optimism about Mr. Cramer's role going forward and the value he will create for shareholders.
Organic Growth May Be On The Horizon
We were also intrigued to note CEO DeMarse's January 8, 2014 LinkedIn email that stated: "As we enter 2014, organic traffic is up and we have a nice pipeline of more new products, including Herb Greenberg's Reality Check."
In our view, Ms. DeMarse may be signaling to the market that the Company is beginning to experience organic growth. This would be a very welcome development because as we have stated repeatedly, organic growth is required to create meaningful and sustainable shareholder value.
In the same December 2013 letter mentioned above, our first bullet point in the section entitled "Recommendations" stated:
"Roadshow. We strongly recommend the Company craft a compelling vision based on its unique position and assets and embark on an aggressive roadshow campaign to inform its shareholders and prospective shareholders that the Company has turned the corner, signed Jim Cramer to a new four year deal, and is heading to new heights."
On January 9, 2014 the Company announced CEO DeMarse would be presenting at two investor conferences: the Needham & Company 16th Annual Growth Conference on January 15th; and "TEN", Noble Financial Capital Markets' Tenth Annual Equity Conference on January 21st. Hopefully, this will soon lead to analyst coverage of the Company, which was another of our recommendations.
In our view, it is unlikely that the Company would have decided to use approximately $3.8 million of its cash on dividends in 2014 (especially on top of the nearly $1.3 million in additional minimum annual cash compensation to Jim Cramer which the Company announced in November) without a strong belief that the Company is entering a new phase of positive cash flow, perhaps resulting from, at least in part, meaningful organic growth. While we continue to believe that increased transparency would drive even more value and hope the Company will improve its disclosure related to growth, we look forward to the release of the Company's fourth quarter and annual results, to see if these developments have begun in a measurable way. In the meantime, we applaud the management and Board of Directors for taking the step of returning value to shareholders by reinstating the dividend.
Spear Point LLC
By: Ron Bienvenu
Its: General Partner
Disclosure: I am long TST. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.