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TheStreet (NASDAQ:TST)

Q2 2011 Earnings Call

August 03, 2011 4:30 pm ET

Executives

Daryl Otte - Chief Executive Officer and Director

Thomas Etergino - Chief Financial Officer

Paul Cox - Sapphire Investor Relations

Analysts

Michael Moskoff - MRM Capital

Unknown Analyst -

Operator

Welcome to TheStreet's Second Quarter of 2011 Earnings Conference Call. This call is being webcast live on the Investor Relations section of TheStreet's website at www.t.st. This call is property of TheStreet and any recording, reproduction or transmission of this call without the expressed written consent of TheStreet is strictly prohibited. As a reminder, today's call is being recorded. You may listen to our webcast replay of this call by going to the Investor Relations section of TheStreet's website.

I would now like to turn the call over to Paul Cox of Sapphire Investor Relations, TheStreet.

Paul Cox

Good afternoon. Thank you for joining us to discuss TheStreet's Financial and Operating Results for the Second Quarter of 2011. With me today are Daryl Otte, Chief Executive Officer; and Tom Etergino, Executive Vice President and Chief Executive Officer. Today Daryl will begin with an overview of the second quarter's progress and achievements as well as an overview of the company's strategy. And Tom will review Q2 financial results.

All statements made on this call, other than statements of historical facts, are deemed to be 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, including those described in the company's filings with the Securities and Exchange Commission, that could cause actual results to differ materially from those reflected in the forward-looking statements.

Although the company believes that the expectations reflected in the forward-looking statements are reasonable, the company cannot guarantee future results or occurrences. The company disclaims any obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise. You may obtain copies of the company's filings with the SEC at the commission's website, www.sec.gov. Any additional information related to matters discussed today, also will be set forth in the company's quarterly report on Form 10-Q for the second quarter of 2011, which the company expects to file shortly.

Now, I will turn the call over to Daryl Otte.

Daryl Otte

Thanks, Paul. Welcome to our Second Quarter of 2011 Earnings Call. As you will have seen from earnings release, we recorded a solid second quarter results despite the choppy conditions in our market.

For the quarter, we recorded $15 million of revenue for our continuing businesses, the highest it has been in 11 quarters. The company's adjusted EBITDA and operating cash flow positive for the quarter and the year to date, showing good operating leverage.

On the call today, I will provide an overview of how we see the market conditions and our performance given those market conditions. I will also share with you some of the milestones we achieved over the past 3 months and reiterate our strategy. Then, Tom will review, in detail, our financial results with an emphasis on the operating leverage of the business and provide a perspective on our long-term business model.

Our year-on-year growth rates moderated in Q2 compared to those in Q1, as uncertainty in the global financial markets increased, and advertisers and investors became more cautious as the quarter progressed. The caution was reflected in weakening indicators of retail interest in the investing sector as evidenced by data from comScore on the consolidated number of unique visitors to the vertical, Google keyword search volumes in our category and data on retail trading volumes at our advertising comps.

While our business was not immune, our top line metrics fared better than these data would predict. We attribute this improvement to the rollout of our strategy and the payoff in the investments in our business initiated late into Q2 2010 and into the second half of that year.

We have a number of key proof points in traffic development, marketing services and premium services which demonstrate this progress and we will highlight some of them for you today.

First, with respect to traffic. The size of the audience of our network of sites grew 33%, year-over-year, according to our internal measurement, showing demand preference for our content and the improved content distribution capabilities we are building.

In June 2011, we entered the top 10 comScore rankings in our category, up 2 ranking points compared to the same period last year. We showed very strong engagement figures as well, near the top among our competitors.

We attribute this to the investments we made in human capital, technology and distribution over the past year. We believe that increasing the size and quality of the audience visiting our network is the single most important factor in developing long-term revenue momentum for both subscription and advertising revenue.

There were 3 main drivers to improve distribution this quarter.

One, strong natural search content discovery. Visits to our site via this channel were up 50% in the quarter versus last year. Two, the rollout of our white-labeled business news, markets coverage and wealth management content service. We now power over 50 horizontal content sites. And three, additions to the ranks of the distribution partner sites we work with.

Also, while not yet moving our overall results materially, our new mobile offerings are achieving good adoption and usage rates. That covers traffic.

Now with respect to Marketing Services. Advertising grew in the quarter but was a little flat from above than the rate of growth to the size of our audience. This is to be expected in any market condition due to the customized nature of our advertising sales strategies. As we sell through a direct sales force at high rates and all-through networks, it naturally takes time for the market to absorb our new inventory. Moderated rate of growth in advertising revenue in Q2 reflects the mood in the broad financial industry and, to some extent, the broader economy.

Advertising for online brokerage clients remain robust because we are a core buyer for them. Gains there were moderated, however, by lower spending from broader financial category accounts and non-endemics. That said, data we have suggest that overall, we gained share of market over the period. This is because we remain a key buyer for advertisers given the exceptional nature of our audience.

By external measures such as at @Plan, TheStreet's networks audience is number one for over index in key demographic characteristics of wealth education, investing propensity and the like.

We did break some new names of a non-core financial category, including The Hartford, Alliance and Prudential. And in non-endemic, we ran great campaigns from brands such as Acura and the Ritz-Carlton Hotels, which are all new to our sites. We rolled out the new high value, non-traditional advertising units, the results of some of the new technology we have in place. For example, we placed a new content unit on our core pages, which helps you to map individual stocks to relative exchange traded funds. This is information that, until now, has been difficult for users to access. This utility creates intense engagement right at the point of a purchase decision, something our launch partner State Street Global Advisors, have been feeling.

I have some other examples where we have extended beyond traditional display advertising. Paid sponsorships for our educational programs, our bet to breathe ETF and mutual funds to work programs, integration of third-party data into our advertising delivery systems to identify specific high-value segments of our audience, and sponsored opportunities around the great new iPad application, which I encourage listeners to download. In fact, BMW is running in high-frequency on our iPad application today.

These new initiatives started during the quarter and will be rolling out and building momentum in Q3 and future quarters.

At the Premium Services, the second quarter showed the beginning of the trend of our stronger bookings performance over the last couple quarters converting into revenue growth, with the revenue growth rate from our ongoing Premium Services business more than doubling sequentially from Q1. This quarter's bookings performance can be attributed to: the rollout of our multiple distribution channels last year and into this year; the growing traffic to our network of sites; and new initiatives put in place this quarter such as behavior targeting and expanded social media distribution.

There are a number of new developments in this line of business which I'd like to highlight as well, each with some impact in the quarter but also showing proof points of success of return on investment of last year's strategic investments.

First, new versions of our flagship RealMoney and RealMoney Pro Premium Services are now in invitational-only May soft launch. Its full scale rollout will take place this quarter. RealMoney and RealMoney Pro are launching on our new content management system, which are fast and flexible to publish with, offering a substantially better user experience and more functionality. These new services have been specifically redesigned from the ground-up with a number of important business objectives: retention; natural search discovery; new account acquisition; and upgrade selling opportunities. Early user response has been good and we look forward to rolling these services out more fully as the third quarter progresses.

Second, we have launched TheStreet's first investing-oriented premium service, specifically built for full-time investing professionals. It is called Chat on TheStreet available initially through proprietary terminals and, as of yesterday, in a web version. Chat on TheStreet offers real-time trading ideas and market commentary from accomplished professionals as they trade. Chat on TheStreet has a high ARPU and a potential for good renewal rates given its clientele. We were able to launch in the in-selling of service quickly and inexpensively because of last year's technology investment.

I hope the preceding descriptions give you some sense of the rollout of our strategy and the proof points we are beginning to see in traffic, Marketing Services and Premium Services.

For those new to TheStreet, I'd like to take a moment and review our strategic plan to build long-term profitable growth for the business and describe how we are executing on that plan.

We were applying the proven and profitable business model inherent in vertical media against our key assets which are: TheStreet's strong market position and brands in the finance vertical; our robust editorial content; and our strong advertising and subscription modernization skills.

We generate original, top-quality, timely content and monetizing the consumptions to that content with diversed revenue streams. We create a large volume of content over 3,000 original articles and 500 videos a month to high journalistic standards with deep domain experience and strong web publishing skills. This content, because of its quality and relevance, attract highly-engaged users, affluent educated professionals who come to our content for a purpose. These users attract the advertisers that are attracted to the demographic characteristics of our audience and the level of engagement users have with our sites. We are also an industry leader in building a large-scale subscription business in digital media. Having both subscription revenue and advertising revenue allows us to monetize our high value content in a superior manner.

Our strategy is to build the size and engagement levels of the audience that visits our network, while maintaining targeted and highly viable demographic characteristics of that audience. This is important as quality audience growth is a precursor to revenue growth for both our Premium Services and Marketing Services businesses. This then, in turn, allows us to earn a higher rate of return on the relatively fixed cost of our business.

During 2010, we made significant investments with the objective of strengthening our platform and building our team to support our strategy. These investments include replacing legacy technologies, building out our subscription telesales capabilities, investing in human capital and expanding distribution channels for both our advertising supported and our premium content.

For 2011, we are focused on seeing returns on these investments. We believe our second quarter results demonstrate that our strategy is showing traction.

Let me conclude it by thanking our employees and contributors for that great work. I also want to thank our shareholders, subscribers, advertisers and distribution and content partners for their support.

With that, I'll hand the call over to Tom who can provide some additional financial detail and a discussion on the general business model we expect over time.

Thomas Etergino

Thanks, Daryl, and welcome, everyone.

As mentioned on previous calls, our pro forma adjustments in 2011 will be far less dramatic than they were in 2010 and 2009. Based on where we stand today, the pro forma adjustments we have made to our 2010 financials revolve primarily around the divestiture in May 2010 of our banking and insurance ratings product line while in 2011, there have been effectively no material adjustments. As such, we continue to see our 2011 business results closely track our GAAP financials and expect to do so on a foreseeable future. All numbers referred to herein, are on a pro forma basis. Please see the press release financials for our full reconciliation of pro forma to GAAP.

Now turning to the results. The company's ongoing businesses recorded revenue of $15 million in the second quarter of 2011, an increase of 4% compared to the prior-year period and 6% sequentially, with $5 million in revenue contribution from Marketing Services and $10.1 million in revenue contribution from our ongoing Premium Services business. The company's Marketing Service business showed a moderate growth rate in Q2 2011 over Q2 2010 of 2%, and an increase of 10% over the first quarter of 2011.

Our year-over-year growth rates were tempered by the non-core financial and non-endemic advertisers pulling back due to market conditions, while we continued to see strong growth from our core endemic financial advertisers.

As Daryl mentioned regarding our traffic, the size of our audience to our network of sites grew by 33% year-over-year, speaking well of the long-term opportunities of our business and the return on investments we made in improving our distribution, content quality and technology infrastructure over the past year.

Moving on to the company's Premium Services business. Subscription bookings were $10.1 million for the second quarter of 2011, an increase of 9% as compared to the second quarter of 2010 with respectable results from all marketing channels, but particularly robust contributions from our telesales organization, which I'll remind everyone, was one of the key components of our investment program in 2010.

These bookings' growth includes both bookings from our investing-oriented Premium Services as well as our RateWatch bank rate information service, which, with the low volatility in rates these days, has found growth more of a challenge. That being said, RateWatch has shown some early success in finding other areas of monetization of that core asset. As an example of this, in July, we signed an agreement with another large government entity to license our data. This is in addition to the FDIC, our current government client, to supply them with our rate information on an ongoing basis. We are happy to the quality of our data being recognized.

Revenue from ongoing Premium Services businesses increased 4% year-over-year and 5% sequentially. The year-over-year increase was primarily attributable to a 4% increase in the average number of subscriptions during the quarter, as compared to the prior-year period. Additionally, average revenue per subscription increased by 1% during the quarter, as compared to the prior-year period, reversing declines we had seen in the most recent quarters. This increase in ARPU was supported by the favorable product mix, again, showing the value of our telesales force in the execution of our up-sell strategy and a combination of stronger renewal rates and higher renewal pricing.

Our sequential Premium Service revenue growth rates are beginning to reflect our stronger bookings performance over the last couple of quarters.

In Q1 2011, we reported a 2% sequential revenue increase versus Q4 2010. And for Q2 2011, we reported a 5% increase over Q1, showing that our stronger bookings performance over the last couple of quarters is beginning to convert into a sequential revenue growth.

As a reminder, since most of our subscriptions are annual in length, most bookings become revenue evenly over 365 days after they are booked. And thus, bookings in the quarter, combined with that of previous quarters, is generally a good predictor of future Premium Services revenue. Given the math, we would expect this momentum to continue in the near term.

Our average monthly churn rate was 3.6% in the second quarter of 2011, compared to 3.4% the first quarter of 2011, and 3.9% in the second quarter of 2010. As I mentioned on the last call, we expect that there will be a moderate quarterly fluctuations in churn due to the significant progress we have made in our core businesses performance, as wins come more slowly.

The relative fluctuations going forward can be impacted by new marketing trials and we continue to undertake to find new sources of subscriber growth, although we expect churn to fluctuate within a reasonable range.

Operating expenses for the company's ongoing businesses were $16.9 million in the second quarter of 2011, an increase of 12% as compared to prior-year period. The increase in operating expenses for the company's ongoing businesses is primarily a result of $800,000 increase in cost of service expense; a net reduction of $800,000 in the prior-year period related to a net gain on disposition of assets, partially offset by an impairment charge; a $500,000 increase in depreciation and amortization; and a $300,000 increase in sales and marketing expense, partially offset by a $500,000 decrease in general and administrative expenses as compared to Q2 2010.

The increase in sales and marketing and cost of services are primarily related to our implementation of several 2010 strategic initiatives as mentioned on previous calls. The increase in depreciation and amortization is primarily due to acceleration in the depreciation of certain capitalized assets that will become obsolete, a result of our expected continued upgrade to the company's technical infrastructure and its content management systems throughout 2011.

On a sequential basis, operating expenses were down 1%, further reinforcing what we have said on previous calls, specifically that the company's 2010 investment program has reached maturity.

Despite our sequential expense rates being relatively flat, it should be noted that our general and administrative expenses were up $400,000, with the lion's share of this increase resulting from certain legal costs associated with the SEC investigation regarding formal officers of the company. We believe these costs are largely behind us and do not expect them to have a material impact on our results on a go-forward basis.

The company reported a net loss from its ongoing businesses of $1.7 million in the second quarter of 2011 as compared to a net loss from such ongoing businesses of $400,000 in the prior-year period.

Adjusted EBITDA for the company's ongoing businesses was $700,000 in the quarter of 2011 as compared to $900,000 in the prior-year period. Adjusted EBITDA is now positive for the 6-month year-to-date as well. There have been no changes to our Q1 view that we will be adjusted EBITDA positive for the year.

The company ended the quarter with cash, cash equivalents, restricted cash and marketable securities of $77.4 million, an increase of $1.8 million compared to March 31, 2011. The company generated $3.2 million in cash flow from operations for the quarter.

For the 6 months ended June 30, we are free cash flow positive. There have been no changes to our Q1 view that we will be free cash flow positive for the year.

Now for a little color on our business model.

I would like to give everyone a little bit better understanding of the long-term target operating model and specifically the leverage we see and our cost structure moving forward. Assuming a notional $100 million annual revenue from our existing business, with no guidance as to the timing of achieving this, we expect that approximately $20 million would flow to the adjusted EBITDA line. I would caution against assuming that this approximate 50% conversion of new revenue to adjusted EBITDA will be consistent quarter-to-quarter as that would not necessarily be the case.

That said, as you can see, in the second quarter we grew approximately $900,000 sequentially in revenue and we had over 100% conversion rate to the bottom line, an indicator of the leverage of the business model.

With that, I would like to ask the operator to open up the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We have a question from Michael Moskoff from MRM Capital.

Michael Moskoff - MRM Capital

Tom, the traffic you reported last quarter was $6.517 million. What was it this quarter?

Thomas Etergino

It was $57.6 million or $57.7 million.

Michael Moskoff - MRM Capital

Wait, let me see. It was $6.517 million, so you're saying $5.7 million? I lost you there. It was $6.5...

Daryl Otte

Well for Mike, it's Daryl. We're disclosing our year-on-year growth rates as measured by our internal logs, which will differ from how comScore measures then. So we use comScore for cross-industry comparison of performance, particularly ranking. And we disclosed the internal server logs, which are far more accurate when disclosing the year-on-year growth rates.

Michael Moskoff - MRM Capital

Okay, so what was -- so last quarter is $6.517 million...

Daryl Otte

That's the comScore statistic. So that's what comScore publicly reports them as having measured. They measure our traffic and try to estimate what the size of our audience is and that's what they're estimating.

Michael Moskoff - MRM Capital

And this quarter you're saying it's not from comScore?

Daryl Otte

No. The 33% is consistently recorded. Internal server logs, we were up 33% year-on-year.

Michael Moskoff - MRM Capital

Right. But what was the actual number?

Daryl Otte

We don't disclose that. We're just disclosing growth rates.

Michael Moskoff - MRM Capital

Okay, but you did disclose it last quarter.

Daryl Otte

No. We just disclosed comScore last quarter.

Michael Moskoff - MRM Capital

Okay, can you disclose comScore this quarter?

Daryl Otte

I don't believe we actually gave it on the call. I may be mistaken but we can get you the comScore statistic, I don't' think I have it here.

Michael Moskoff - MRM Capital

Okay. As far as the average unique visitors versus last quarter, can you tell me sequentially up, down sideways? I'm trying to get a gauge of sequential versus year-over-year.

Daryl Otte

Yes, I think was -- it moderated sequentially and that's a function of kind of retail interest in the stock market softening, offset by gains in our distribution.

Michael Moskoff - MRM Capital

Can you give -- can you quantify, when you say moderated from last quarter, what it was?

Daryl Otte

No. I don't. I mean, I don't have -- no I can't do that. And we're trying to give enough statistics so that folks know that we have momentum in the business but, as you know we're trying to limit the total number of statistics that we give out because we obviously would tip our hand to our competitors by making these public disclosures.

Michael Moskoff - MRM Capital

Okay. How about ARPU?

Daryl Otte

The ARPU was up, year-on-year, in the quarter.

Michael Moskoff - MRM Capital

And what about sequentially?

Daryl Otte

Sequentially, we were -- sequentially, it was up as well.

Michael Moskoff - MRM Capital

Any quantification?

Daryl Otte

No. We're giving the year-on-year stats, but as color, it was up sequentially as well.

Michael Moskoff - MRM Capital

Okay. Just for curiosity, any way going forward that you could also give sequential versus year-over-year? Just to give...

Daryl Otte

We'll certainly think about it. I mean, I think there's this kind of an ongoing discussion that certainly we've had with you in there and some other investors. We need to try to balance giving full transparency to investors but since we're a small public company, if we give full disclose of our statistics, it also puts us and our marketing teams at a disadvantage. So we need to balance the 2.

Michael Moskoff - MRM Capital

When you talk about the -- in the press release, the second paragraph, when you talked about growth rates experienced in the first quarter moderated it as [indiscernible] level of uncertainty, blah, blah, blah, did you just see it moderate? Like what moment did you see it moderate? And are you seeing it pick up or continue in this moderation in this quarter that we're in now, the third quarter, from a linearity standpoint?

Daryl Otte

From a linearity's perspective, it certainly was stronger in the first half of the second quarter then, it moderated in the back half of the quarter. And I think if you look at the kind of publicly available stats, the comScore report -- and mix and estimation of the total number of unique visitors in the universe, that rate financial sites, you look at the Google index search terms in the finance vertical, if you look at kind of the online brokerages who report their volumes on a monthly basis, you'll see that trend kind of mirrored across all those different statistics and that certainly was reflected in our business as well.

Michael Moskoff - MRM Capital

And how about in the first 5 weeks of this quarter?

Daryl Otte

It's a little early for us to kind of be giving forward-looking guidance on that.

Michael Moskoff - MRM Capital

Tom, when you talk about 100 % conversion rate, that was the last thing you just said, can you just -- just explain that a little better?

Thomas Etergino

Sure, I often get asked about the expenses and how we're going to -- how the leverage of the business. What I was just pointing out was that between Q1 and Q2, our expenses were actually down a little bit. And our revenue was up about $900,000 so that -- and so our adjusted EBITDA of all of that revenue flowed through to the bottom line. And I was just trying to point out the fact that we're starting to show the leverage of the business.

Michael Moskoff - MRM Capital

Do you foresee like what the G&A -- with that $400,000 obviously, no longer. And you talked about, I don't know, a few quarters ago, about being helped out by the rental situation, the new building I believe, and then new technology and stuff. From an operating expense going forward, is it plateaued and going lower? Kind of thing where obviously, if revenues, top line continues to go north, then you'll even have that much more expansion of margins that kind of thing?

Thomas Etergino

So I haven't given specific guidance on OpEx. But the trend over time, I think as I stated in my prepared remarks, that we expect over the long-term that about 50% of the conversion of additional revenue was going to hit adjusted EBITDA. Again, as I said, the quarter-over-quarter, the ratio can't -- may not hold, but that's kind of what we're expecting. So I'm not giving kind of forward guidance. I do think that we've -- we have I -- mentioned in Q1 that we kind of plateaued or we had seen the full quarter impact of our spending program in Q1 of this year. And I think that we're still comfortable with saying that.

Michael Moskoff - MRM Capital

And as far as the ARPU for this new Chat on TheStreet thing. Daryl, I think you said it's a higher ARPU. Can you give like some kind of number versus the average ARPU which I believe you said somewhere is in the [audio gap] 300 and something level last quarter. I don't have a number offhand.

Daryl Otte

Yes, yes. It's substantially higher. I'll have a salesperson call you to sell you a product if you like and you can talk about pricing. But this is a professional -- joking aside, it's a professionally-oriented product, it has a really high value and we expect to get much higher ARPU for it.

Michael Moskoff - MRM Capital

I actually got a call today and I actually used it today. Who are the guys and women on the site? Like what are their claim to fame, so to speak?

Daryl Otte

It was well-distributed so quickly, that's fantastic. We're working with a partner to hand-recruit some folks, accomplished investing professionals, who are providing the content for us. It vary along a long [indiscernible] what the business that we do throughout all of our properties.

Michael Moskoff - MRM Capital

Okay. And is OptionsProfits -- how's is that doing?

Daryl Otte

We don't really talk about the individual service performance levels. I wouldn't really have anything different to say about its performance relative to what we said in the past. One of the things that occurred to me, we have not really talked about -- or we did not talk, in the prepared remarks, about is that they're starting to really develop a real nice educational component to it? It's largely been webinars, monthly webinars, that help folks learn the trade options and this past, I believe, it was June we had our first live event at the New York Stock Exchange. They were nice enough to host us. It was a paid event, with sponsorships and so they're that's one of the new initiatives that's working on there which we're pretty excited about.

Michael Moskoff - MRM Capital

One last thing. Regarding -- so going forward you have a revenue growth starting to go on a normal direction, hopefully continues. You have expenditures. You've already discussed that deferred revenues were up $247,000 which is great. The -- when I look at your balance sheet, your cash went up, have you thought about -- Kramer wrote an article, a few months ago, talking about dividends. Just a general thing about how dividends have become so important. If you look at the landscape today, as the market started to falter and there's so much concern with the Fed looking like they going to probably have to elongate this model even longer of 0 interest, 0 percentage interest rate. And have you guys thought about maybe raising the dividend from a $0.10 to $0.15, doing something, because again, you still haven't had any coverage being picked up.

Daryl Otte

Mike, I think I know where we're going on this. Yes, I mean, I think that if you look at the terms of the preferred shares, which TCV holds 100% of, that one of the -- they have relatively few rights with respect to that. But one of them that they do have is we are required to seek their approval prior to raising the dividend. And I wouldn't expect that they would be interested in giving that approval. So share buybacks and dividend increases are not part of the arsenal tools we have.

Michael Moskoff - MRM Capital

So they're more on a pure growth thing based on where the stock is in and what have you, and you're still paying a decent dividend?

Daryl Otte

Yes. I don't want to speak for them, but it's not likely that they would have -- it's more than not likely that they would agree to that.

Operator

[Operator Instructions] Our next question Mohanad Alma [ph] from Bain [ph] Capital Management.

Unknown Analyst -

Can you please elaborate on the fact that you had 33% more visitors to your sites this year compared to last year? And you only had a 2% increase in your marketing services revenue?

Daryl Otte

Yes, gladly. I mean, I think that we sell our advertising through a direct sales force and not through networks so there is -- it takes quite a while for -- it does not take quite a while, it takes some time for that excess capacity that we create to be absorbed by the advertising marketplace. So what we do is we show the growth in our audience and then we go back to sell that broader audience to our advertisers. And so it's not an instantaneous connection there. If we did sell through networks, we would be able to do that, but the pricing that networks offer versus the direct sales, kind of handcrafted custom marketing efforts that we take, those pricing on networks is much, much lower than the approach that we take.

Unknown Analyst -

Well, absolutely I mean, that is understandable. But when things that -- there is a backup ad network or backup source of revenue that you have when you have -- when you are all -- when you don't have these direct sales arrangements available. When you have more inventory than...

Daryl Otte

No. Mohanad, We don't -- I mean, we haven't -- I'm sure that we've met, so maybe we haven't given you our full pitch, but we don't through networks. Networks undermine the value of our advertising, so it would be -- you cannot buy. Advertisers cannot get onto street.com sites. They can't get next to our great content and they can't access our high-quality audience through a network. If we offered it through a network, then all of our advertisers would, of course, buy through the network and not directly from us.

Unknown Analyst -

I see. And just another technical question. Those visitors, I guess, that you are accounting as an increase over last year, they all -- those are also those who are visiting your Premium Services? Is that true? Is it that -- are we -- are they under the same count?

Daryl Otte

Yes, and we do have advertising and marketing sponsorships against our premium services.

Unknown Analyst -

Got you. That was my question. So, I guess, if you -- since you are having increased traffic volume and you have mentioned an increase in search engine organic traffic, I think you mentioned, by 50%, how can we avoid running out of inventory? Or the other way around, I guess, having excess inventory and not selling against it?

Daryl Otte

We view the growth in traffic in audience as a good thing because it's a precursor to advertising revenue growth in the future. As we take, this betters performance statistics and go out to our advertising partners and demonstrate that they have a broader buying opportunity than they have in the past.

Operator

And there are no more questions at this time. I'd like to turn the call back over to Daryl Otte for any closing remarks.

Daryl Otte

All right. Thanks, everyone, for participating in the call. I appreciate it, and we look forward to speaking with everyone soon. Take care.

Operator

.

Ladies and gentlemen, this concludes today's presentation. Thank you once again for your participation. You may now disconnect, and have a wonderful day.

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