TheStreet.com Q1 2007 Earnings Call Transcript

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TheStreet.com, Inc. (TSCM)
Q1 2007 Earnings Call
April 26, 2007 11:00 am ET

Executives

Thomas Clarke - Chairman & CEO
Eric Ashman - CFO
Chaela Volpe – IR

Analysts

Richard Fetyko - Merriman Curhan Ford
Mark May - Needham & Co
Bill Lennan - First Albany
Bill Morrison – JMP Securities
Michael Moskoff - MRM Capital
Brian Murphy – Sedoti & Co.
George Grose - American Capital Partners
Joseph Garner – Emerald Advisors

Presentation

Operator

Good day ladies and gentlemen and welcome to TheStreet.com first quarter 2007 conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Ms. Chaela Volpe, Investor Relations Manager. Please proceed, ma'am.

Chaela Volpe

Thank you. Some of the statements made on this earnings call not related to historical facts may be deemed to be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements which may concern TheStreet.com's financial performance, as well as its strategic and operational plans, are subject to risks and uncertainties that could cause actual results to differ. The company undertakes no duty to update any such statements.

The risks and uncertainties are described in the company's SEC filings, which are on file with the SEC and available at its website at www.SEC.gov. Additional information will also be set forth in TheStreet.com's quarterly report on Form 10- Q for the quarterly period ended March 31, 2007, which will be filed with the SEC in the near future.

I now turn the call over to Tom Clarke, TheStreet.com's Chairman and Chief Executive Officer.

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Thomas Clarke

Thank you, Chaela. Good morning. Thank you for joining us today to review our first quarter 2007 financial results. Today on the call I will begin with an overview of recent company highlights, and then Eric will review our financials with you. I will then review some of the quarter’s operational accomplishments and look at our strategy going forward.

I would like to begin by welcoming James Altucher and the Stockpickr family to TheStreet.com. As we announced yesterday, we have purchased the remaining 50.1% of Stockpickr.com that we did not own. When we started this joint venture in January of this year, James and I both had an expectation that we had established something very unique for anyone who owned a stock, or was looking for stock ideas. The acceptance we have seen in the financial community from both individuals and professionals visiting the site, looking for investment ideas, to those participating in the social networking aspect of the experience, have brought us to this point where we believe that further integration and sharing of content and functionality would best be served under TheStreet.com umbrella. James will continue at the company as president of Stockpickr.com which will now be a wholly-owned subsidiary of TheStreet.com and he will report directly to me.

I would also like to welcome Steve Elkes to our management team. As many of you know from our announcement in late March, Steve has come on board as our Chief Revenue Officer and EVP of Mergers and Acquisitions. This is a new position in our firm, perfect for Steve, who’s 20 years of prior experience will be a tremendous contribution to the company. In his role, Steve will help us maximize the many revenue opportunities created by our strategic shift to a more advertising-supported environment.

On our year end call, I mentioned that we would be looking to supplement our organic growth with accretive acquisitions such as we did when we acquired the Ratings business last year and also as we have recently announced with Stockpickr.com. Steve will be leading the search for further acquisitions as we look to broaden our reach and influence. Again, I would like to welcome these new additions to our team.

Now I will turn the call over to Eric for a look at our quarterly performance results.

Eric Ashman

Thanks, Tom. This quarter, we delivered revenue of $14.5 million, an increase of 30% over the first quarter of 2006 and the highest quarterly revenue total in our history. Our first quarter net income was $3 million, or $0.11 per share on a fully diluted basis. This is the highest first quarter net income and EPS result the company has ever delivered, and represent an increase of 17% over the $2.6 million or $0.09 per fully diluted share in the first quarter of 2006.

Advertising revenue for the first quarter of 2007 totaled $5.1 million, the highest advertising revenue we have ever delivered, and a 56% increase over the same period last year. The growth in advertising revenue is attributable to our ability to effectively monetize increases in both unique users and page views on our web site. We delivered 287 million page views in the first quarter, representing 28% growth over the same period last year, and sequential growth of 18%. We had 5 million average monthly unique visitors, an increase of 11% over the prior year and a sequential increase of 10%. This increase in reach and page views, combined with continued strength in our audience demographics and the ability to create new and unique advertising solutions for our advertisers enables us to expand relationships with existing advertisers, acquire new financial advertisers, and attract increasing numbers of non-financial advertisers.

We had 75 advertisers on the site in the first quarter, compared to 69 in the first quarter of 2006. With respect to our ongoing diversification of our advertising base, advertising revenue from non-financial advertisers increased by 139% over the same period last year. These non-financial advertisers, including automotive, technology and travel advertisers who are attracted to our broadening audience demographics represented 32% of total advertising revenue in the quarter, an increase from the 21% of total revenue these advertisers comprised in the first quarter of 2006.

As we noted in the past, we remain focused on the monetization of our page views, and in the first quarter our revenue per thousand page views was $17.66, 22% higher than the $14.46 we delivered in the first quarter of 2006.

With respect to our interest in Stockpickr in the first quarter of 2007, pursuant to GAAP reporting guidelines and based upon the final structure of the joint venture, TheStreet.com’s 49.9% share of the first quarter financial results of Stockpickr LLC are consolidated within our financial results. Stockpickr is a free, advertising-supported site and the revenue impacts the advertising revenue line on our P&L. Additionally, as Stockpickr.com is powered by TheStreet.com as part of TheStreet.com network of properties, Stockpickr’s traffic and unique visitor totals are consolidated under them as well.

Turning to the subscription side of the business, subscription revenue in the first quarter of 2007 was $8.7 million, a 15% increase over the same period last year. We booked subscription orders of $10.4 million during the quarter, an increase of 3% over the same period as last year. We had approximately 95,000 subscribers at the end of the first quarter of 2007, which is 5% higher than the 90,000 subscribers we had at the end of the first quarter of 2006, after excluding the 10,000 subscribers we had on a bulk subscription deal that ended in the middle of 2007.

Our subscription business includes subscriptions to TheStreet.com Ratings print directories, which we acquired as part of our purchase of certain assets in 2006. We are pleased to announce that we have entered into an exclusive licensing agreement with a leading independent reference publishing house to outsource the sales, printing, publishing, distribution and marketing of the specific Street.com Ratings directories, as well as to market and sell online access to these directories to public, college and specialty library markets.

This change will have an impact on our subscription revenue, as we recognize a percentage of the subscription revenue associated with this part of our business as a royalty payment that will be recorded as other revenue in future periods. Additionally, our subscriber count will be reduced by the approximately 5,500 print directory subscribers that will move off of our books. We expect that this agreement will deliver higher margins as we eliminate costs specifically associated with the print business, while also allowing management to focus on our core electronic publishing business.

The average annual revenue per subscriber was $366 in the first quarter of 2007, which is unchanged from the first quarter of last year after adjusting for the end of the bulk subscription deal in 2006. Our deferred revenue, which represents subscription bookings that will be primarily recognized as revenue over the following 12 months was $14.2 million at the end of the first quarter, an increase of 14% over the same period last year. Other revenue, which is comprised primarily of syndication revenue, was $700,000 in the first quarter, 152% higher than the same period last year.

With respect to our margins and expenses, our gross margin in the first quarter of 2007 was 61.2%, 1.6% lower than the gross margin of 62.8% in the prior year. Part of this decrease is attributable to the lower gross margins associated with TheStreet.com print directory business, which has been addressed through our agreement outsource the printing, sales, marketing, and distribution of these directories after May 1st.

In addition, we invested in additional editorial and video staff to increase production of stories and video in areas where we see additional advertising demand, including small business, personal finance and lifestyle. We expect these costs to drive additional future revenues and improvement in our gross margin in future quarters.

Sales and marketing expense was 23% of revenue in the first quarter of 2007 as compared to 19.3% in the first quarter 2006. This increase was driven by our investment in growing our advertising sales team as we took the team from ten to 14 people; as well as our increased investment in traffic-driving initiatives such as SEO in paid search.

As we discussed on the fourth quarter and full year 2006 earnings call, we went into the first quarter intent on investing in the parts of our business that would drive future growth. We expect a larger advertising sales team to contribute to continued strong advertising revenue growth throughout the rest of the year. We also expect to maintain sales and marketing expense at Q1 levels, with the expectation that these activities will contribute to higher revenue in future quarters, lowering these expenses as percentage of revenue throughout the rest of the year.

G&A expenses were 18.7% of revenue in the first quarter of 2007, as compared to 21.3% of revenue in the first quarter of 2006. This decrease is largely attributable to our ability to generate additional revenue without significantly increasing our overhead cost structure from year to year.

Depreciation and amortization expense increased as a percentage of revenue to 2.6% in the first quarter of 2007, up from 1.7% in the prior year. This increases largely attributable to amortization of the intangible assets associated with the acquisition of certain assets of Voice Ratings in August of 2006.

Stock compensation expense totaled $600,000 in first quarter of 2007 as compared to $350,000 in the same period last year. Our operating margin was 17% in Q1 of 2007 compared to an operating margin 20.6% in the first question of 2006. As I have said in the past, we believe that there is still significant margin leverage in the business and over the long term we believe there room for growth in operating margin expansion. In the near term, we will continue to look for opportunities to use that leverage to invest in the business to drive the growth and to take market share in our sector while at a minimum, protecting the operating margin we delivered in 2006.

Turning to the balance sheet, we generated $2.7 million in cash flow in the first quarter of 2007. Our free cash flow in the quarter was $2.8 million. Our cash and restricted cash at the end of the first quarter of 2007 totaled $49.3 million. As many of you know, we have accumulated estimated net operating losses totaling a $132 million through 2006. Up until now we have continued to carry full evaluation allowance on the differed tax asset associated with these NOLs. Given the strong performance and consistent profitability of the business over the past two years, it is very likely that we’ll adjust that valuation allowance in 2007. This will require the one-time recognition of income which will boost our EPS in the quarter this adjustment is made. This will have no impact on our actual tax rate, which will continue to be approximately 2% as our NOLs continue to offset any taxable income we may generate in near future. We don’t know exactly when this might happen, but we want you to know that this is out there somewhere on the horizon so there is no surprise when the impact hits our bottom line.

Finally, the company paid its fifth consecutive quarterly dividend of $0.025 per share in the first quarter of 2007.

With that, I will turn it back to Tom

Tom Clarke

Thanks, Eric. We began 2007 focused on further development on four advertising-supported content initiatives: TheStreet.com TV or video, TheStreet.com Ratings, TheStreet.com University Education, and social networking through our investment in Stockpickr.com. We are convinced that further investment focused in each of these areas will continue to propel the advertising revenue opportunities before us.

Let’s take a look at each initiative on its own, and the progress that was made over the first quarter of 2007. Regarding video, TheStreet.com TV has continued to expand its offerings and is seeing additional viewership as a result of this expanded content set. We added a daily show, Wall Street Confidential with Jim Cramer, to our programming where trading day, Cramer and other top financial commentators look at today’s market action and discuss important news, trends and events in the financial world.

Capitalizing on its popularity, we decided to convert Wall Street Confidential to an advertising supported podcast through an exclusive partnership with Continental. The podcast joins our industry-leading podcast, The Real Story with Aaron Task.

Other developments included the launch of small business programming, the continued build out of our library of executive and mutual fund interviews, and increased distribution of our content to both Yahoo! and Google. We have also launched a new business show called One Step Ahead which will take individual investors beyond Wall Street’s near-term focus on earnings and economic indicators to examine the potential market impact of noteworthy political, scientific, sociological and other non-market developments. This show will highlight thought-provoking stories about subjects outside of conventional market reporting, yielding unusual insights that will enable investors to act upon them. We see opportunity and as no one else is providing the connective tissue between public geopolitical affairs and business news; The One Step Ahead show will do just that.

We also provide an abundance of personal finance and luxury lifestyle content with fresh entertainment programming and features, and moving forward we’re looking to increase our audience’s ability to interact with our host and personalities through video blogs and other forms of participation.

We are also moving towards more integrated ads and new sponsorships and I’m pleased to mention that construction of our new on site video facility is nearing completion, enabling us to further expand our production capabilities. In March, we also launched 58 new advertising-supported RSS feeds and 20 new paid content feeds. Some of the advertisers participating in these efforts include Kodak, Verizon Wireless, and Comcast Workplace.

Creating the content as a story on our free site, turning it into a video and RSS feed or a podcast, and then syndicating it, these are all opportunities for continued advertising growth.

Turning to TheStreet.com Ratings, we enhanced our stock, mutual fund and ETF rating screener with free ratings on banks and thrifts and insurers. By broadening the Ratings content set which financial ratings of more than 3,800 insurance and 8,500 financial institutions nationwide, we are able to satisfy consumer demand as well as increase the length of time visitors to our free site spend interacting with our proprietary Ratings screening tool. Both of the above-mentioned data sets have greatly increased the number of Ratings-related stories we are able to generate, increasing both our page views and the associated advertising revenue.

Looking at our education initiatives, I mentioned on our last call that we acquired a managing editor with broad experience both in finance and in developing and implementing online courses. We have already begun seeing the positive result of having this new hire oversee further development of TheStreet.com University. This quarter we worked with Lightbulb Press to enhance our free glossary of financial and business terms as part of our multi-step strategy to help our readers become more street-savvy. Housed within TheStreet.com University, the glossary is searchable from the search articles feature, throughout our free site, and we also have hyperlinked the terms, embedding them with certain articles and stories throughout our network of properties.

Within TheStreet.com University, we also established two new columns: Ask the Street, the first column, is designed to answer questions about the market, financial terms, strategies and investment methods. The second column, The Finance Professor, written by Scott Rothbort, contains a syllabus covering the fundamental things individuals need know and to understand to help them invest in today’s markets. These initiatives mark our first steps towards providing a more robust set of tools to help make the educational offering more interactive as we continue to provide a wealth of personal finance content to those of our readers looking to increase their financial acumen.

In terms of social networking, our announcement yesterday that we acquired the remaining 50.1% of Stockpickr.com that we did not own, to give you some insight into how excited I am about the opportunity I believe this presents. With social networking being the fastest-growing portion of the web, our experience of working with StockPickr.com from January has given us the insight on how to deliver value that advertisers demand in the Web 2.0 world. Now that Stockpickr will be a wholly owned subsidiary of TheStreet.com we can fully integrate and optimize both the content and the advertising opportunities.

On a more personal note, I have had the pleasure of working with James for a number of years as a contributor to our site before Stockpickr ever existed. His market knowledge and insight, combined with his entrepreneurial nature will be a welcome addition to our management team as we remain acquisitive in the space.

With the Beat the Street fantasy training game we recently launched, we also hope to generate a social networking-like effect with game participants by implementing web 2.0 technology to provide the superior gaming experience that educates, entertains and connects our growing audience. To further promote this level of engagement, we have been posting stories about competitors’ progress on our free site to keep participants of this round of the game in the loop as to who the top performers are. This also gives those readers who are considering participating in a future round of the game some insight on the competition.

While the majority of our focus has been on the four advertising-support initiatives mentioned above, we also enhanced our subscription offerings in the first quarter by launching a new service named TheStreet ETF Shark Alerts. This $499 annual subscription service it designed for investors and traders of ETFs where subscribers learn from professional money manager Jim “RevShark” De Porre, a long-time writer of RevShark’s blog on RealMoney.com, the company’s paid subscription web site.

In looking at our performance this quarter, we are exactly where we thought we would be. With record revenue and record first quarter net income, we have put ourselves in a position where we can be aggressive in looking at revenue-enhancing opportunities, whether they exist in a build or buy situation. We remain focused on top line revenue growth and will continue to invest and expand our content offerings to take advantage of the market opportunities we see.

Now I would like to open it up for any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Richard Fetyko - Merriman Curhan Ford.

Richard Fetyko - Merriman Curhan Ford

On the subscription deal that you announced today, could you describe a little more in detail on how that’s going to impact the subscription revenues? How much of the subscription revenues will be – you mentioned 5,500 subscribers that will be impacted by this deal. If you could give us a little more detail on that.

Thomas Clarke

I’ll turn it over to Eric to give you the specifics of it, but just for clarification, it is really not a subscription deal, it is an outsourcing of the print business that we acquired when we bought the Ratings business. It is obviously not a core competency that we have in producing directories, shipping, mailing, printing and selling them, so it has been outsourced to a leading publisher who does that. Eric will give you the specifics as to what it means in terms of subscribers.

Eric Ashman

I think that the two points to make are the print directory business was approximately a $2.2 million to $2.4 million business. That now becomes outsourced and we will take a percentage of that revenue back as licensing revenue, and that will drop into the other revenue line. In addition, you will see an impact on items like deferred revenue as we pull the deferred revenue related to those subscribers off of our books, as well as bookings in future periods.

Richard Fetyko - Merriman Curhan Ford

How are the new Ratings subscription offerings doing that you’ve launched recently?

Thomas Clarke

When you say the new Ratings subscriptions, just to make sure I am answering the right question, are you talking about the one-off reports that we sell regarding a specific stock on our Ratings screener?

Richard Fetyko - Merriman Curhan Ford

Yes, that’s what I meant.

Thomas Clarke

I think it is too early to tell. I mean, we really launched it late in the first quarter so I don’t think we have a feel for it. Again, we view that really as anything we get from that would be incremental revenue due to the fact that, as you know, we provide a rating grade on any stock or an ETF or mutual fund that someone puts in for free in an advertising-supported environment. These are reports that are a little bit more detailed in nature, a five-page report. I don’t think this is a business that is going to move the needle a lot, but I think it is a business where we can pick up some additional revenue for anybody who is doing research and wants a little bit more insight into our analysis of the company.

Richard Fetyko - Merriman Curhan Ford

On the subscription side of the business, do you still expect to grow that business by 5% to 10%, excluding some of these events like the outsourcing of the print business and the loss of subscriptions?

Thomas Clarke

Richard, the way I look at it I think it really has to go to the fundamental model that we have. As you know, I am a believer in a multi-tiered revenue model. We have been at the subscription business a long time; we understand the cycles that the business has and what you see in the market when there is a volatility or a lack of trading activity.

Our focus is really on total revenue, because we have levers in the business. As we see it, subscription we think is a little bit more challenging, then we push the lever a little down and we open up the lever a little bit more on the advertising side. If you look at where we went with total revenue, that is the way we do it.

Do we think the subscription business can grow? We do think we can grow it, but again there are factors that come into play that we don’t control, such as the market itself. There are a lot of things going on in the world, but I think if you really look at why we have a multi-tiered model, we anticipated the fact that you had these cycles in the subscription business, that is why we see and we are investing in so many of the advertising-supported initiatives we have, because as we have indicated on this call and many times in the past, the margins on the advertising business will be better than the margins on the sub business.

I think we look at it as we will continue to grow total revenue. The mix might change a little bit from where we think it might be today, it might not; it might be better or worse in any one segment but I think our focus is on growing total revenue.

Richard Fetyko - Merriman Curhan Ford

Makes sense. The advertising business has been obviously phenomenal, there is not much to really say there. In terms of the gross margins, our thesis has been that the gross margins should expand over time as the mix of the revenues – subscription and advertising – gets heavier on the advertising side. In the first quarter the gross margins were actually down. Should we expect gross margins to expand from these levels?

Eric Ashman

We do. The first quarter, we talked about this on the fourth quarter call. We really looked at the first quarter as an opportunity to invest in the business in areas where we thought investment would drive growth over the upcoming quarters, particularly on the free advertising side. Our expectation is that growth will take hold very quickly, and you will see incremental improvement on the gross margin going forward.

That is part of what was behind the motivation on the Ratings print directory business deal as well. That was not a particularly high margin business for us, and so that is a margin pick up for us as well as that deal takes hold.

Thomas Clarke

Richard, the other thing that I think demonstrates what Eric just talked about in terms of the investment, if you really look at traffic which is going to be the advertiser driver going forward, you had page view growth of 18% sequentially and you had unique visitor growth of 10% sequentially over what was a very big and large fourth quarter. So I think that as we see it going forward, as you know, there is a little bit of a lag from when we drive all of this traffic and bring it into our universe to the extent to when we start to monetize it. So I think that should give you some good indication that I think your thesis is intact. So I think as we play this out, we will continue to move in that direction.

Richard Fetyko - Merriman Curhan Ford

That’s a good point. Lastly, on the Stockpickr acquisition, a lot of the social networking sites have struggled in terms of monetizing that inventory. I am trying to get your thoughts on how well you can monetize the page views on the Stockpickr site, or if it feeds into some of the other areas that you have there, easier to monetize.

Thomas Clarke

I think we are very unique in this regard. I think you are right, and it is certainly something that James and his team and I have talked about many times when we first put the joint venture together. I think what we have learned is we have learned how to deliver the value for the advertiser. I think if you go to Stockpickr.com today and you look at the number of advertisers that are there, I think you can see that we have learned how to monetize it. We expect to monetize this site immediately. So I don’t think it is a question that we built it, they are coming and we don’t know how to monetize it. I think we have built it, they are coming and we will monetize it.

As we take this forward, James and I are very excited about the advertising opportunities and sponsorship, probably more importantly, sponsorship opportunities that I think we have going out, with the very unique aspects of the content that is associated with that site.

Richard Fetyko - Merriman Curhan Ford

Thank you very much.

Operator

Your next question comes from Mark May - Needham & Co.

Mark May - Needham & Co.

A couple of questions on the advertising business, had a good quarter there. Last quarter you had talked a little bit more in detail about the video side of the business, I wonder if you could update us on the number of video starts you had in the quarter, and what portion of your overall ad revenue came from video ads?

Eric Ashman

Mark, when we went into the fourth quarter you are right, we gave quite a bit of detail around that. As we turned the corner and came into Q1 and looked at how we were selling the video business and then came into this call, one of the things that we decided was that breaking out that type of detail, it ended up with the potential to be misleading. It is because of the way, how integrated the sell cycle has become on video on our site. It is almost like trying to break out revenue for particular categories with any other part of our site.

So what we were concerned about was that ultimately if we continue to give this level of detail, the metrics as we broke it down, ultimately start to become a bit misleading. So we came back to pulling back from that. What we are coming back to is focusing on revenue per thousand views, because ultimately that speaks to the overall monetization of the site. It is a better overall representation of what is going on with the site.

One of the things we had talked about was advertising revenue for video for the year, expecting it to be 7% to 10% of overall revenue. We are still very much trending towards that. The business is strong, CPM on video remain strong. But in general, we’ve looked at certain metrics that we thought would ultimately confuse more than clarify what was going on with the business, so we decided to pull back from that a bit.

Mark May - Needham & Co.

Also on advertising, I don’t know how big Stockpickr has gotten in terms of traffic, users. What impact has consolidating that had on your unique user and page view count?

Thomas Clarke

It hasn’t really had that large an impact immediately, due to the fact that we just launched it in January. We expect for it to generate – it is hard for me to put a percentage on it because the integration that we now can do with it by owning all of it, and I think the opportunities that James and I discussed even last night, will take it to a level we haven’t seen yet. Mark, I think we are a quarter away from giving you some insight into that, because we want to make sure we don’t have duplication in audience and all the other things that are associated with when you bring something in.

Mark May - Needham & Co.

On a related point –

Thomas Clarke

Let me tell you one thing that is out there, Mark, that might help you just in terms of the social networking aspect of it. If you look at the number of portfolios that have been added into the Stockpickr website itself, this has grown from nothing on January 3rd to we are seeing north of 50,000 now and we are in March. So I think it is growing by leaps and bounds and I think it creates a stickiness that will benefit both of our sites within the network of TheStreet.com family.

Mark May - Needham & Co.

Another dynamic I was trying to figure out is that your RPM, while up on a year-over-year basis, was down from the level it had been in the last two quarters. I wouldn’t have thought there was a lot of seasonality there. The other thing I was trying to sort through here is – because the growth in the page views was good, 29%, 30% -- but it was a slowdown from where page view growth had been. I am trying to figure it out. I know there is a lag effect, but what were the dynamics that played into the lower monetization of the site?

Eric Ashman

The key thing with RPM, particularly in the first quarter, we have to keep in mind there is actually seasonality in the advertising side of the business. The first quarter of the calendar year is always the weakest quarter. You are always coming off of Q4, which is the strongest quarter. Not only do you always have the lag in terms of growth in page views, which is something that you monetize in Q2 and beyond, but Q1 is historically the weakest quarter in terms of overall advertising spend.

Thomas Clarke

Mark, just to give you some insight so you can look historically and prove out, if you go back and you looked at ’06, if you looked at where the monetization was in the first quarter, it was $14.46 and then ended the year at $19.49. In subsequent quarters to the first quarter, that RPM grows, so you do see – what we had previous really to last year was a lot of seasonality in the first and third quarters in the advertising business. We kind of normalized that a little bit last year as we were able to drive that RPM up each and every quarter. We are probably going to see the same thing this year, but you do get that seasonality in the first and the third quarters.

Mark May - Needham & Co.

A couple of questions on the subscription business. It looks like the ARPU on your print Ratings business was in the 415 to 420 range. As we model subscription starting in the second quarter and going forward, there is also an impact on your blended ARPU. I am just trying to get a sense of where that – does that go back down? I think before you were folding in Ratings it was in the $330 range.

Eric Ashman

It won’t change that much. Remember, what was really taking the ARPU down in the first and second quarter last year was the bulk subscription deal that ended at the end of the second quarter, or ended at the beginning of the third quarter. So that third quarter/fourth quarter rate in the $360 to $370 range is more representative of where that range has been.

It may come down a little bit because of the Ratings piece, although the Ratings piece ultimately is a very small percentage of the overall subscription business. On the other side, you’ve got products like Real Money Silver which has got $1,000 list price, and even the new ETF product which goes out at $499, that will provide a counterbalance to some of that.

So you might see a little bit of a shift one way or the other, but it certainly won’t go down to where it was last year.

Mark May - Needham & Co.

And what would you contribute the sub – I think you had net sub losses not only in this quarter but in the third quarter. What would you contribute the first quarter net sub losses to?

Thomas Clarke

I think you contribute it a little bit to – look, we don’t like to make excuses. There are just market conditions that are out there, I think you have some market volatility; February and the beginning of March certainly had a lot of volatility around it, made the sub business more challenging.

I would attribute it to that. Maybe there are some other market factors out there, maybe people are finding content, maybe even on our own site, more fulfilling than what they needed to get – I think if you look at trading activity that came out of the first quarter, I think you can see that was down too. Our sub products are geared for the more active investor, so to the extent that trading activity is down, maybe some of the fall off in the sub number can be attributed to that.

Mark, again it comes back to our focus really on total revenue and the ability of having levers that we can push either way. If the market volatility is going up and the market is good, we can push more towards the sub business. If it isn’t, then we can continue to diversify and get it into the advertising-supported business.

We look at the sub business, again, as a business we like it. We like the cash and annuity, and it allows us to really go after opportunities we see in other parts of the business, should they be there. If the advertising business should ever slow up at some point then we can flip that lever down a little and put the lever more towards the sub business.

Mark May - Needham & Co.

I am being a little long-winded here, so cut me off if I am annoying you. The last question is, as you start to license more of the Ratings business, how should we think about that? You’ve got this price point – I just threw out because you gave us the numbers – but the $415 to $420 annual retail value for a directory. As you license it, what is the percentage or portion of that retail value that you are capturing in license revenue?

Thomas Clarke

I can’t disclose the terms of the deal. I can tell you a little bit. It varies based upon what is ours. Part of the mandate within this relationship, actually, is that they are better-positioned to grow that business, so we think net-net overall that business can get bigger over time. For us in particular, it is a margin play and it is a management focus issue. It gets away from focusing on a business that we didn’t know very well which is the print library business and gets us back to focusing on the core electronic publishing business.

More importantly, as you can imagine, selling print directories to libraries, particularly without scale, is not a really profitable business for us. So it is a margin improvement issue for us.

Mark May - Needham & Co.

Thanks, guys.

Operator

Your next question comes from Bill Lennan - First Albany.

Bill Lennan - First Albany

Good morning. For Eric first of all, I wanted to get a little clearer on the sequential increase in cost of goods sold, it looks like it was about 750k. You mentioned investment in new content, and some impact from [Weiss]. I want to focus on the impact from [Weiss], I am kind of scratching my head here because COGS was flat from Q3 to Q4 when we would have expected to have seen some uptick from [Weiss]. The short version of the question is, of the 750k uptick Q4 to Q1 in cost of revenue, can you give us a flavor for how much was [Weiss] and how much was editorial, a fixed, recurring cost?

Eric Ashman

Just to clarify, when I was talking about the impact of [Weiss], that is more comparing the interchange in gross margin from Q1 of this year to Q1 of last year when Ratings, that part of the business wasn’t with us.

Coming back to your question about sequential, from a sequential perspective it is very little of the sequential increase would ultimately be related to [Weiss]. There is a small amount as we did a little bit of investment in that business, but for the most part it is all Street.com, our core business. It was, as I said, related to primarily investing in head count and editorial, in video production. And on the sales and marketing side, in ad sales and traffic generation, where we saw that there was opportunity to drive future growth.

Bill Lennan - First Albany

A little more color, Eric, on when the print goes away or becomes outsourced, could you go over the timing again? Did you say May?

Eric Ashman

We are expecting for the handover to take place on May 1, as of right now.

Bill Lennan - First Albany

And we have 2.2 to 2.4 in revenue, we can figure it out by quarter and then some of it will be booked as full revenue in Q2 and some of it will go to royalties?

Eric Ashman

That is correct.

Bill Lennan - First Albany

What kind of costs, again back to the costs, can you help us understand the cost side that goes away? I am wondering about the magnitude of the costs that go away?

Eric Ashman

The business itself overall, just to give you a little bit of perspective, the operating margins in that business were in the teens and that was the rate on it. Again, it is a small part of the overall picture for the business, but if you think about a full-year annualized impact on a margin perspective, it could be as much as a point on margins, on total operating margins.

Bill Lennan - First Albany

And you said no burden, so that is like pure cash costs? There is no allocation or anything?

Eric Ashman

Just to give you a sense of what the profitability of that business is.

Bill Lennan - First Albany

And on the sub losses, do you find that the losses were concentrated on any particular product? More of a macro question with respect to subs, do you find that sub gains or losses mimic the market? For example, when momentum is hot do value subs go down? If volatility goes up, options newsletters and such become more profitable?

Thomas Clarke

The answer is yes. That is all part and parcel of what goes on in the sub business, and this is not unique to us. This is one of the reasons why in the sub business most of the newsletter people who are in it are in some ways, private, because you need a full spectrum of products because if momentum is hot, then options is not, or vice versa. And obviously performance, whether it is a small cap or a large cap or with any of the unique aspects of the subscription product itself certainly affect the subscription levels.

To the first point you raised about, did we see it in any one product? The answer is no. There was no concentration of loss in any one product. Again, more indicative of what I think we saw in the market with the volatility where it cut across all products as opposed to one singular product.

Bill Lennan - First Albany

That’s all I had, thanks guys.

Operator

Your next question comes from Bill Morrison – JMP Securities.

Bill Morrison – JMP Securities

A few questions. I wanted to clarify, Eric, when you said we should expect sales and marketing expenses to be consistent from Q1 going forward, you meant on an absolute basis, right? Not as a percent of sales? Because sales and marketing should come down.

Eric Ashman

That’s correct. That was the point I made, is that if we are on an absolute basis we expect it to stay in this range and as a percentage of sales it will continue to come down.

Bill Morrison – JMP Securities

Was it 287?

Eric Ashman

It was 287, up 28% year over year.

Bill Morrison – JMP Securities

20% or 28%? Because when I do 28%, 287 over the number I have in my model it is like 20% growth year over year.

Eric Ashman

We had 224 million page views in Q1 of 2006.

Bill Morrison – JMP Securities

So 28%?

Eric Ashman

That’s correct.

Bill Morrison – JMP Securities

Going back to Mark’s question on the video, I can see an argument why you may not want to give us video as a percent of revenue, you are probably bundling it and it becomes increasingly difficult to break out, but can you at least give us a sense so we can track the growth in that business of the video views?

In other words, you gave us the page view growth but it would be really helpful to us if you continued to give us the metrics you have been consistently giving over the last few quarters, which were videos produced and video views in the quarter.

Thomas Clarke

It is hard for us to do that. I can tell you that both video views are growing, but what we are finding is that an absolute number of video production, I think it is a misleading metric because we can tell you that we can continue to increase and produce more videos; the fact of the matter is we are looking at it to determine what videos we should produce, and maybe a smaller number of videos is going to have a bigger and larger impact on the advertising side of the business. Because there are certain videos we find and we see that have much more viewership than some of the others, and what we really want to do is we don’t want to be a factory of just producing videos, we want to be a place where we produce videos that people actually want to see.

Bill Morrison – JMP Securities

So wouldn’t the video view metric, even if you just don’t give us – maybe we shouldn’t focus on videos produced; but I mean, video views, should give us some sense of at least the user engagement with that product on your site. I am not saying individual, but how many videos were viewed overall?

Thomas Clarke

I don’t have that number in front of me Bill, so we will come back to you on that. I can tell you that it is growing substantially.

Bill Morrison – JMP Securities

Last year you saw some seasonality in your page views. Should we expect to see similar seasonality this year? I think page views were down, up sequentially from Q1 to Q2 and I think maybe in Q3. But can you just give us a sense of how we should think about page views progressing through this year?

Thomas Clarke

Bill, I think part of it is a function of what is happening in the market, to be honest with you. First of all, you are correct if you look back at last year, you had a big first quarter and then we had a little bit of drop off in the second quarter and then sequentially again in the third and then we had a very big fourth quarter. I can tell you that what we are seeing in page views currently are very strong, but we are only not even halfway through the quarter here, so I don’t know how it is going to play out. I can tell you at least the start of the quarter is that it is very strong and if it would continue, we would have sequential growth.

Bill Morrison – JMP Securities

Historically you have given us the sell through rate in the quarter. Can you give us some sense of where that was at?

Thomas Clarke

Our sell through rate in the first quarter was 90% versus 88%.

Bill Morrison – JMP Securities

90%?

Eric Ashman

Again, in terms of the metrics that we are providing and you see a subtle shift, it is probably because even with sell through rate, as we get more and more customized ad inventory and the ad sales team comes up with more innovative solutions, it is a number that becomes a little bit less meaningful, so we can continue to give it if it helps you guys with clarity in terms of understanding the business, but I want to just give you some perspective that ultimately as we go around and around on the metrics that impact the business, the revenue per thousand number ultimately speaks to how well we are monetizing the site. We just need to all be aware that there are other metrics out there that at times, just confuse and don’t really provide much depth of understanding as to what is going on in the business. We are just trying to be conscious of that as we take it forward, but it was 90% in the first quarter.

Bill Morrison – JMP Securities

Can you give us some sense of the drivers of the RPM growth year over year? For instance, was it coming from just pure CPM increases or possibly serving more ads per page? On that theme, we noticed at least the other day we went to the site and saw, for the first time I have ever seen it, a preroll ad before we could access the site. Is that something you plan to continue doing? Have you tested it? One might – while it is probably a great advertising vehicle, I would imagine some users might get turned off if they come to the site and they see an ad first thing, a screen takeover ad.

Thomas Clarke

I can answer both questions. In terms of what is driving higher RPM, to me it goes back to our earlier discussion. A little bit of it is higher average CPMs, video continues to take hold on the site; viewership increases and as we improve our ability to sell that ad inventory, which ultimately sells at a higher CPM rate, as a percentage of overall views and revenue it is going to help pull that RPM number up.

You also notice more, there are a couple of very custom ad units that are on the site that are very specific, meet very specific needs of advertisers where they are buying across the site. You will see things on the front page, things in video, those type of package deals give us quite a bit of pricing power as well.

So it is what we are selling, it is the mix in terms of where CPMs are and how we are selling it that are all really contributing to that. Even the front page splash, which we have been doing for a little while now actually, from time to time, it is an example of an ad solution that helps with the RPM number. We have actually looked at the impact of that in terms of who exit that page, and actually it does pretty well. So the ad unit in general works very well for us.

Bill Morrison – JMP Securities

One more and I will let you go. On the investment side, are you guys planning to redesign your site this year and if so, when would we expect that to happen?

Thomas Clarke

We are planning to incorporate a new design onto the site to really, again where we are supporting our ad-supported business, I mean I think the site has served us well but it is a design that has been out there a while and I think for some of the newer kind of advertising components and thing we want to bring to it and to engage our users even more we need to restructure it. We would be looking for an end of the year beginning of next year kind of scenario to do that. That would be the timeframe we are working on.

Operator

Your next question comes from Michael Moskoff - MRM Capital.

Michael Moskoff - MRM Capital

First, a couple of metric questions. Regarding the total subs, last quarter it was 96.4and this quarter it is 95, is that correct?

Eric Ashman

That’s correct.

Michael Moskoff - MRM Capital

And the total advertisers last quarter was 85 and I know it’s the strongest quarter; this quarter it is 75, is it because of the seasonality would you say?

Thomas Clarke

Correct.

Michael Moskoff - MRM Capital

As far as subscriptions in general, what were the annual and the monthly this quarter?

Thomas Clarke

The annual again was about 60% and the monthly stayed in that 90% range.

Eric Ashman

That just a renewal rate, in terms of renewal on those.

Thomas Clarke

But in terms of the mix, the annual is 80, the monthly is 20.

Michael Moskoff - MRM Capital

So it actually went up, good. Did you say subscription orders was 10.4 million?

Eric Ashman

That’s correct, bookings was 10.4 million which is up 3% year over year.

Michael Moskoff - MRM Capital

And it was also up from 8.4 last quarter?

Eric Ashman

That’s correct.

Michael Moskoff - MRM Capital

Which is great. The cost of Stockpickr, can you quantify that?

Thomas Clarke

I can’t. We are not releasing the terms of the deal but we’ve talked about before, it will be accretive to us.

Michael Moskoff - MRM Capital

As I always say to you guys, let’s look at this quarter as far as everyone was reaming you a couple of quarters ago, if I recall, because of page views and what have you. So now you have had two quarters in a row of double-digit growth there. You have deferred revenue which was up 1.5 million, correct, from last quarter?

Eric Ashman

Correct.

Michael Moskoff - MRM Capital

And the expenses, just sequentially, went up about $1 million from my calculations, which equates to about $0.035. Would that be correct?

Eric Ashman

Right.

Michael Moskoff - MRM Capital

You have subscription growth up 25% from last quarter and the seasonality kind of thing, which should be I guess a little weaker but maybe the market went up, whatever. And obviously your stock is down about 7.5% and your cash went up $2.7 million, so you guys are like a cash cow for a small cap company and get no credence to basically anything, it seems like.

So would you consider if the stock remains at these disheveled levels and you haven’t bought back stock recently and I know you are doing these small acquisitions for the niches, or maybe even double the dividend because you just have a really nice balance sheet. I discuss this with you all the time, the frustration level of the stock.

Thomas Clarke

First, I am ready to bring you on this side of the phone call, Mike, so thanks. All of those things, as you know, Michael, go into our discussion. My goal is to deliver. I think there, I am pleased at where we were. I think we highlighted to everybody in our last call what this quarter was going to look like in terms of investment. We delivered record revenue growth. We have made a conscious decision to look at these diversified – because in the past, we have gotten some discussion about subscription being so much of the revenue stream, can you diversify? And then the idea was we were only limited to financial advertisers, so we continued to grow the non-financial advertisers in a big way.

The one point, if I can just make a point because I think it comes up. We are really emphasizing the strategic decision to look at the advertising supported side of the business with considerable cash and because we look at it as a mass opportunity. I mean, as good as the subscription business is, it is a niche opportunity. I think when you look at this, we want to get much bigger, we want to be a bigger player in this space, we want to get there quicker. This is a conscious decision that we make to go where the bigger opportunity and the big money is.

As we continue to move these lever up and down, if something were to go bad in the ad market we can shift the lever the other way again and that really has been premise of the business over time. I hope there are not people that are confused by this direction. We are really looking for the mass market over the paid niche, and I think if people can understand that and understand where we’re going, I think they will understand that the margins in the business and the growth opportunities there are going to be sizable. I think they’re going to be pleasantly rewarded for sticking with us through this process.

We get through some of the situations that we have. To get into your point, Mike, can we do both the growth and buyback? I think right now our focus is really on growth. We talked about it in the fourth quarter that we come into this year really focusing on growth, we had a great year last year on growth, we look to emulate it again this year. If the stock gets hit, we’ll buy. I mean we’ve got cash, we can support it. I think that people who are out there who might be selling the stock may not understand that it is a conscious decision of moving in this strategic direction, but we do and we’re willing and able to support it if it gets to a level that we feel we need to.

Michael Moskoff - MRM Capital

If you had to decide between buying back stock or doubling your dividend, just for curiosity, is there one thing when you guys discuss this with the board that you lean for? If you were only going to do one versus the other; you could actually do both, but.

Thomas Clarke

The discussions go in a lot of different directions, Mike. I can’t say that we lean more to one way or the other. I think it looks at the opportunity that presents itself at the time that we’re having the discussion. Both of them, as I’ve mentioned in the past, are on the table; we can do both and I think what we are really focused on is growth. We are looking for if there are other acquisitions like Stockpickr where we believe that our distribution platform and our traffic and the opportunity they bring to social networking, we are very, very excited about that.

I speak personally that I am I know that James is in joining us, and I think that those are the kind of things we’re looking for going out. In the sense that if the stock were to falter, someone will be there. We think we’re going to use our cash to really grow the business.

Michael Moskoff - MRM Capital

Last but not least, the direction that you guys are going I think is 100% correct and obviously the vacillation of the business model has changed to the point where some people get frustrated whatever you guys are doing, it seems and the video advertising model, for instance, the Wall Street Confidential that Cramer was on versus when he was on radio, just to be able to watch that for five or six or seven minutes and hear what he has to say is phenomenal info, and all of the other guys as well.

Leading me to my last point. He has this program that he has been doing for the last couple of days talking about private equity, who would be the closest guys to being bought out because that is what is going on in the market and that is what is making everything go crazy.

So here you have a company that is 280 million market cap and $50 million in cash, pretty much. $230 million ex out the cash. It is just mind boggling.

Thomas Clarke

Mike, I will send you flowers after the call. I appreciate it. Look Mike, I am a realist about this and have been for a number of years, as you know, you and I go back a long way in having these discussions. My job is to deliver for the shareholders and I am confident in our team, I am confident in the strategy we have, I am confident in the product and services we have that we are going to continue to do that. We have done it the last couple of years, I am proud of the track record. I think that people who are getting in and out may not understand. I am hoping that we are clear and concise in our message, but if we are not then we need to do a better job there. I am only focused on delivering in whatever the people value out there, they do. I am confident with our team and our strategy that we will get the desired results.

Michael Moskoff - MRM Capital

There haven’t been any private equity guys, when you guys put yourselves up for sale or when you said you were exploring certain things when the stock was half the price? Have there been any rumblings recently regarding that?

Thomas Clarke

I really can’t comment on that, but I can tell you that as we went through that process, our decision was that our opportunity was better served by taking the course of action that we took. We are very, very confident in where we are, being acquisitive as you and I have talked about on this call, and I think we are going to continue to grow, whether we build or we buy, those are both opportunities we have. We are very comfortable in moving up into the space the way we are currently constructed. If it happens, and someone wants to have a conversation, sure. I have a fiduciary responsibility to have it. If we can be acquisitive and we can be a consolidator in the space, then I am just as happy to do that.

Michael Moskoff - MRM Capital

Thank you as always for the answers.

Operator

Your next question comes from Brian Murphy – Sedoti & Co.

Brian Murphy – Sedoti & Co.

Tom, you mentioned the decline in trading activity in Q1 and the online brokers certainly painted a pretty grim picture as far as retail investor activity during the quarter. You spoke to what impact that may have had on the subscription side. Do you think that it had an impact on your web metrics, for instance? Did you notice a meaningful decline in page views at the end of February?

Thomas Clarke

I actually did not see it in the web metrics, but again, I wouldn’t expect to because if in fact – let’s just say that thesis is correct. If in fact people are moving or not ponying up for a subscription service, then what they are probably doing is consuming information in another format or place, and most likely they are doing it in a free environment, where we are getting the benefit of that from the other side.

That is why I have always liked the multiple revenue tiered model because if in fact that thesis is correct and they are not buying the sub product, I still want to monetize them with advertising dollars in the free side. I think we are uniquely positioned to do that, and that is why earlier in the call I said that the focus for us is really on total revenue and we may not get the mix 100% right quarter to quarter, but in general, we will continue to grow revenue.

Operator

Your next question comes from George Grose - American Capital Partners.

George Grose - American Capital Partners

Good morning. Can you give us a little sense of where your acquisition pipeline stands? You mentioned your four growth levers – video, Ratings, University and social networking – so I presume it would be in that sphere?

Thomas Clarke

We want to be acquisitive in a way to broaden our opportunities with the mass consumer markets. So, I think with the way we are seeing it is that in the category of finance, can we broaden ourselves to bring other aspects of someone’s financial life into TheStreet.com’s network of properties? I think if we can do that, if we can find acquisitions that are there that will be very beneficial to us.

I can tell you that our pipeline for acquisition looks good. Obviously being acquisitive I can’t equate 100% today but I’m sure because I know what happened, that when we you do a deal like Stockpickr and you are able to secure someone as talented and brighter as James to come and join us, that there are other people that we may not be aware of today who have similar types of opportunities and will contact us. I am hoping that is the case. From what we are actively pursuing, the pipeline is pretty good and I’m hoping that as a result of these type of enhancements we’re seeing opportunities that maybe we weren’t aware of.

George Grose - American Capital Partners

In terms of size, are they similar to that size or relatively smallish?

Thomas Clarke

I think the range of the acquisition, there are a few that are similar in size and a few that are larger in size. This is a firm that’s got a currency, a stock price and we have a lot of cash and more important, we have the ability to get additional funding if we found an acquisition that was out there that was sizable and we wanted to bring it in.

I think it’s really not for us the size of the opportunity, I think it is finding the right opportunity. I think as long as we stay focused on that we’ll do well.

George Grose - American Capital Partners

in terms of margins, gathering from what I hear on the call you mentioned that you would like to be able to, you see yourselves protecting your margins in 2007 compared to 2006?

Eric Ashman

That’s right, that’s correct. Our expectation, and we have said this before, that at minimum we will protect the full year margin we delivered in 2006.

Thomas Clarke

But remember George, that comes with the investment we’re making to grow the business. So 30% growth rate, 56% on the advertising side. Those are the things that we’re really focused on.

Operator

Your next question comes from Joseph Garner – Emerald Advisors.

Joseph Garner – Emerald Advisors

Tom, can you talk a little but more about the Ratings business and the impact you have seen in terms of page views may be getting from there?

In the past you have talked about how you believe you could get advertising at premium levels to what you’ve gotten on other areas of the business associated with the Ratings site. I am just wondering how that’s played out as you have been rolling out the different Ratings services?

Thomas Clarke

Ratings to date has surpassed what our expectation was when we bought the company. Our ability and now that we have a majority of the datasets up on our free sites, we’re seeing a tremendous amount of traffic to it and it’s growing each and every month as the datasets have expanded. We’re seeing stickiness that the screener application has done. We’re seeing a tremendous amount of content that we can generate off of the Ratings information.

That content manifests itself a variety of different ways. It not only becomes a story of the print or text kind of version of the story, but then if you go to video you will five value stocks, or five growth stocks, or five small cap stocks. So we are not only doing it in video, it will ultimately wind up in podcast.

We have the ability to take this content that we put out there, we serve ads on it when people first come to do it; we create additional content off the same information and we’ve commoditized it in two or three different areas. So all in all it’s been very good.

We are seeing a nice flow of advertisers into it. The angst with us, I know, is always on the financial side but if you look at the growth of the non-financial advertisers which I think made up 32% of our advertising revenue this quarter, up from a 21% level back in ’06, I think that our strategy not only is working in terms of traffic, it’s working in terms of advertisers. We are seeing a nice CPM. I think Eric explained early, we did a good job in that in talking about where the growth of the numbers were coming from. Video again is still showing a very strong CPM.

Joseph Garner – Emerald Advisors

During the quarter, it looked like you were doing more in terms of releasing some of the premium content onto the free site on a time-delayed basis. I am wondering if could talk a little bit, if you are seeing that helping to drive either page view growth or driving more interest in some of your premium subscriptions services out there?

Thomas Clarke

I think it’s a very good point and we publish it and mentioned that earlier. That is the lever. That is the lever you have had in this since we’ve got a lot of very timely, market sensitive information that sits behind our paid wall that is very valuable certainly at the time that we do it; probably a little less valuable five hours later, but nonetheless, gives insight into opportunities that could have been there for someone who had the product.

So we use it in a couple of ways: one to drive additional interest in sub products and two, to drive traffic because the minute that it appears there it becomes an immediate traffic driver.

Joe, as we have talked in the past, that is one of the levers we have. Again, as we see the opportunity continuing to expand on the ad side of the market we’ll continue to do that. Should we not see a positive return by doing that, then we will reverse it and we can move it back the other way. So it is one of those levers that we have and I know it is hard for people to understand it because they don’t live and breathe it like we do. That’s the way the model has always been set up to work and we think it’s working effectively.

Joseph Garner – Emerald Advisors

A final question, you mentioned that increased the size of the advertising sales force from ten to 14. Could you talk a little bit in terms of how long does it take to ramp up additions to sales force when you bring someone on? Where do you stand in that process currently? Any plans for further expansion in the ad sales force?

Thomas Clarke

It’s kind of a three-part question, so let me break it down. I think that number one, we said in the fourth quarter that one of the goals this year and Eric mentioned it when he went over the expenses that we would invest in the ad sales business. We did bring people on. It usually takes us – it is not a full quarter ramp, it is certainly shorter than that but it isn’t tomorrow. I would say within probably a six-week window we are starting to see the return on the investment of bringing people on board.

I think a function of us continuing to grow the ad sales force is a function of us driving additional traffic and unique visitors to the site. I think as long as we are successful in producing content in areas that advertisers are demanding it, again, we are still seeing a lot of demand for video content, we are seeing a lot of demand in personal finance, small business, the good life. I think as we continue to produce content in those areas then there will be an opportunity to add more sales people to it. I am from a background that always wants to add sales people. So I think my slant is certainly to move in that direction. So I think if the opportunity presents itself with traffic and unique visitor growth we will do it.

Operator

Your next question comes from Richard Fetyko - Merriman Curhan Ford.

Richard Fetyko - Merriman Curhan Ford

A quick follow up on the subscription side of the business. The bookings were up now two quarters in a row sequentially. Shouldn’t the revenues follow in terms of the growth rate? Isn’t that a leading indicator?

Eric Ashman

A little bit; there is always a little bit of a lag because you ultimately you have got a deferred piece and a lot of these subscriptions play out; 80% of our subscriptions are annual subs. So it will provide in future quarters as Tom always says, that 14 million in deferred revenue provides that annuity over the following 12 months. We had a slight sequential rise in Q3 to Q4; we were essentially flat with Q1, down just a little bit and you see that continue to play out over future quarters, reflective of that increase.

Richard Fetyko - Merriman Curhan Ford

In terms of the page view growth that you are seeing, you mentioned that the Ratings content has helped tremendously. What about outside of the Ratings content? What kind of page view growth are you seeing? What percentage of traffic came from the search engine marketing efforts?

Thomas Clarke

The page view traffic comes from a lot, Ratings certainly was a big factor. I think our editorial team in general did a wonderful job in the quarter of producing content that people wanted to consume and read. I think a lot of it just came from our own internal efforts of writing stories and being on top of things that people want to see. Video certainly contributes to it. I think it’s really a combination of that to the extent that we had the relationship with Stockpickr and traffic going back and forth to them, that contributed a little bit.

There’s a lot places that all contributed. I mean Ratings was probably predominantly one of the areas, but I think in general there were lots of areas of the site and I think if you look at the personal finance type of content that we spent a lot of time developing in the quarter, that also had a big impact because there’s a lot demand for that type of content. We kind of look at it that way.

Eric Ashman

Just specifically a question about paid and natural research, I think this touches on the concept of investment in Q1. I think a lot of this activity played out in Q1 and we’ll see the impact of it in Q2, Q3, Q4.

Richard Fetyko - Merriman Curhan Ford

You mean the investment into search engine marketing?

Eric Ashman

In terms of our SEO efforts, those efforts really went underway in Q1, we’ll really see the impact of that in future quarters. In terms of paid search, we saw it drive additional traffic to the site but in terms of overall as a percentage, it didn’t change a lot.

Thomas Clarke

Richard just as a point, if you’re trying to model this there was no big traffic acquisition that happened because of paid search. What you are seeing is more still organic search as Eric mentioned. We think the impact will happen in future quarters; it did not happen in the first quarter.

Richard Fetyko - Merriman Curhan Ford

Got you and then lastly on the margins I guess it sounds like since you are projecting that the margins should be as good or better as they were in ’06, with the first quarter being at the low end of that, it sounds like the rest of the year we should see pretty consistent increases in margins. Obviously the sales expenses should be more or less stable; the cost of service should be leveraged as well; and the margins should really ramp throughout the rest of the year back to the high end of that range in ’06?

Eric Ashman

That’s our expectation as well.

Operator

There are no further questions so I would like to turn it back to management for closing remarks.

Thomas Clarke

First of all, thanks for everybody being on the call I think one thing there seems to be some confusion on our direction, so maybe I can take a minute to give you a little history on stuff and understand where we are going.

If you go back and look at my ten years as CEO, when I first got here the business was bleeding and we had to develop our business model to make it work. We emphasized the subscription business because at that time with the ad market imploding, the subscription business allowed us to survive and get through it.

I think if you think about what’s happening now, our emphasis was really on the mass personal finance market. We have always been at the highest end of the financial reporting market, if you remember on my triangle analysis that said if you look at the top two quadrants, that was our sub business. That was really professionals and very active self-directed investors.

But we really weren’t in the mass market. We are now in the mass market and going after it with a vengeance. I think if you think about the two what I consider to be very significant additions to our management team in the last six weeks, which is having Steve Elkes join us who can really focus on acquisitions and lend a steady hand as we look and evaluate opportunities, and then with James coming on, I don’t think there should be any confusion as to the fact that mass market opportunity is one that we see and the opportunity is very big. The margins will follow.

I think Richard brought it up very early in the call about the margins of the ad business being better than the sub business. They are. It will come. It is just that we need a little investment to get there. I think when you look at it, that is the way we look at the business and I hope that you can understand that and we’ve dispelled any of the confusion that is out there.

So thanks again and I look forward to talking to you next quarter.

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