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Executives

Chaela Volpe - IR

Tom Clarke - Chairman, CEO

Eric Ashman - CFO

Analysts

Mark May - Needham & Co.

Richard Fetyko - MCF

Michael Moskoff - MRM Capital

Bill Lennan - Broadpoint

George Grose - American Capital Partners

Brian Murphy - Sidoti & Company

TheStreet.com (TSCM) Q3 2007 Earnings Call November 5, 2007 9:00 AM ET

Operator

Welcome to TheStreet.com third quarter 2007 earnings conference call. (Operator Instructions) I would now like to turn the call over to Ms. Chaela Volpe, Investor Relations Manager.

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 September 30, 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.

Tom Clarke

Thank you, Chaela. Good morning and thank you for joining us to review our third-quarter 2007 financial results. On the call today is Eric Ashman, our Chief Financial Officer. Eric will provide an in-depth look at our financials after I give you an update on our strategic initiatives.

This was a very exciting quarter at TheStreet.com. We are pleased to report that overall, we had a record-breaking quarter in terms of both financials and traffic metrics. We reported total revenue of $16.1 million, a 24% year-over-year increase and a new quarterly high for the company.

Net income, excluding the impact of a non-cash income tax benefit, was $3.8 million, an increase of 22% over the same period last year, and we delivered $0.13 earnings per diluted share. Eric will give more color on this in a few moments since, as you know, there were many moving pieces this quarter.

In terms of traffic, we are pleased to report that our average monthly unique visitors reached 6.3 million and we had 321 million page views in the quarter. This trend is precisely what we had hoped for moving into Q4, the heaviest advertising quarter of the year. Building on this momentum, we are well-poised for the fourth quarter and beyond.

This past quarter, we carried out initiatives quickly and aggressively toward fulfilling our mission to broaden our content and reach as we move forward in our strategy to become the premier online money destination. As I have said on our last conference call, our intention is to use accretive acquisitions as a means to facilitate these plans.

This past quarter began with the acquisition of Promotions.com on August 2nd, moved forward with a series of management additions designed to better integrate and strengthen our position for future growth and ended with the launch of our first mobile initiative with Quattro Wireless. We then moved quickly in the fourth quarter with the acquisition of BankingMyWay and RateWatch, which we announced last Friday, November 2.

As a reminder, Promotions.com is an interactive marketing services business and leading provider of online promotional marketing services to some of the world's largest brands and publishers. Promotions.com develops and deploys online tools and services that leverage and provide value-add to media campaigns by increasing awareness, engagement and activation. Their integration to our business moved very quickly in the quarter, as campaigns such as Glenfiddich Scotch, Delta and Citibank benefited from the creative insights delivered by the Promotions staff.

As mentioned on the August 2 conference call where we discussed the Promotions.com acquisition, the company can grow independently of TheStreet.com. It has been working with existing clients such as McDonald's, where it is responsible for the online portion of the Monopoly promotion, one of the largest and most successful online campaigns ever launched. Promotions.com has recently secured some new high profile clients such as Shell Oil for the promotion of its Gunk-Free online instant win game and Conde Nast for its wired home product information catalog.

In the third quarter, moving into Q4, we made two strategic additions to our management team. We reached a point where the level of growth taking place at the company required us to bring in new talent with a specific expert skill set. In September, we appointed Kurt Tietjen as SVP of Operations, and in October we appointed Erika Faust as SVP of Marketing.

Kurt is an operations management executive with more than 20 years of experience managing online media operations, and Erika has more than ten years of marketing experience in the online and digital video space, both retail and advertising supported. Both have extensive experience successfully guiding companies through business model transitions and into the next phase of development and profitability, and we are pleased to have them on board to support and accelerate our strategy.

One example of our expansion occurred on October 24 when we announced that we had launched mobile.TheStreet.com, developed and powered by Quattro Wireless with AT&T as our launch sponsor. This exciting initiative allowed us to expand distribution and create exclusive sponsorship opportunities and an additional innovative advertising solution for advertisers. The offering provides TheStreet.com's most in demand, real time content to mobile devices, including content from the categories Life and Money, Opinion, Most Read Stories, Small Business and Market Updates.

Turning to BankingMyWay and RateWatch, I indicated on the Promotions.com conference call back in August that our next acquisition would have more of a content focus, and our acquisition of BankingMyWay.com and RateWatch certainly fulfilled that objective. The type of data provided by BankingMyWay.com creates a call to action for consumers, and will allow us to participate in the hyperlink advertising model that's popular within the industry.

It also gives us the opportunity to marry our content with the high-margin data they possess, ultimately allowing us to increase our operating margins. This recent acquisition is a perfect complement to the upcoming launch of MainStreet.com in the first quarter of ‘08.

This past quarter also saw many business highlights in various areas. First, to increase TheStreet.com brand awareness and to drive traffic to our network, we entered into a content-sharing relationship with AOL to include certain posts by Jim Cramer on AOL's Money and Finance and BloggingStocks.com web pages. Stories and analysis from TheStreet.com are also featured on AOL's welcome page in the form of articles, slideshows and video, in addition to links to other TheStreet.com content.

Next, Stockpickr! became the first financial social networking site to surpass 100,000 user-generated portfolios. The site has also furthered its integration with TheStreet.com by launching an alert service for all stocks in one's portfolio by sending an e-mail notice when that particular stock is mentioned in a number of areas, such as unusual option activity, any analyst upgrade or downgrade, any mention on a 52-week high or low list, or any mention in any of TheStreet.com videos.

Lastly, our work on the redesign of TheStreet.com website, the redesign of Stockpickr.com and the launch of MainStreet.com all remain on schedule.

Now, let me turn it over to Eric for a detailed review of our financial performance.

Eric Ashman

Thanks, Tom. Let's start by reviewing the top line results. This quarter, we delivered total revenue of $16.1 million, an increase of 24% over the third quarter of 2006 and the highest quarterly revenue total in our history. Adjusted EBITDA, excluding stock compensation expense totaling $500,000 was $4.5 million, an increase of 32% over the $3.4 million in 2006, exclusive of $500,000 in stock compensation expense.

Net income on a GAAP basis was $19.8 million or $0.67 per diluted share. Excluding the impact of a non-cash income tax benefit of $16 million related to the recognition of a deferred tax asset on a portion of the company's net operating loss, net income for the third quarter of 2007 was $3.8 million, or $0.13 per diluted share, an increase of 22% over the net income of $3.1 million, or $0.11 per share in 2006.

Earnings per diluted share, excluding the impact of deferred taxes and stock compensation expense, were $0.15 per share, compared to $0.13 per diluted share in the third quarter of 2006.

We'll now take a look at revenue in more detail. As we discussed when we acquired Promotions.com in August, going forward we will report revenue in two categories: marketing services and paid services. Marketing services revenue, which is comprised of advertising and interactive marketing services revenue from the recently acquired Promotions.com business totaled $6.9 million for the third quarter of 2007, an increase of 85% over marketing services revenue of $3.7 million for the third quarter of 2006.

We delivered advertising revenue growth of 23% with total advertising revenue of $4.6 million for the current quarter, as compared to the $3.7 million in advertising revenue in the prior year.

As the third quarter progressed, very late decisions by some of our financial advertisers to delay their campaigns until the fourth quarter due to market conditions impacted our total advertising revenue for the quarter. We are pleased to report that these advertisers have come back to TheStreet.com in the fourth quarter, confirming that this was a short-term pullback.

Interactive marketing services revenue from the Promotions.com business totaled $2.3 million in the third quarter for the partial period of August 2nd, the date of the acquisition, through September 30th. Combined, total revenue for marketing services represented 43% of total revenue in the third quarter, as compared to 29% in the prior year.

With respect to the ongoing diversification of our advertising base, advertising revenue from non-financial advertisers increased by 97% over the same period last year and represented 49% of total advertising revenue in the quarter, an increase from the 30% of total revenue from non-financial advertisers in the third quarter of 2006.

We had a record 97 advertisers in the quarter, as compared to 71 in the prior year, and our percentage of revenue from the top five advertisers decreased to 29% of total advertising revenue, down from 41% in Q3 of 2006. Two of our top five advertisers in the quarter were non-financial.

We delivered 321 million page views in the third quarter, representing 65% growth over the same period last year. We had 6.3 million average monthly unique visitors, an increase of 53% over the prior year. As with last quarter, both of these metrics -- page views and average monthly unique visitors -- are quarterly records for us.

As I suggested earlier in the call, the market volatility in the third quarter created something of a Perfect Storm. We saw an explosion of page views during the quarter, as readers came to TheStreet.com as a reliable source of information to help make sense of what was happening in the market.

However, this increase in traffic occurred in what is traditionally the weakest advertising quarter of the year, exacerbated by the delayed spend of some of our financial advertisers late in the quarter. The combination of these two events drove our sellthrough rate down to 78%, and our revenue per 1,000 page views down to $14.36, 25% lower than the $19.18 we delivered in the third quarter of 2006. We believe that the increased market penetration and page views will serve us well in the traditionally strong fourth quarter and beyond, and we expect to see a strong RPM number in Q4, based upon current expectations for advertising revenue in the quarter.

Pages services revenue, which is comprised of subscription, syndication and licensing revenues, totaled $9.2 million for the third quarter of 2007, essentially flat when compared to the third quarter of 2006. Subscription revenue totaled $8.3 million for the current quarter, a decrease of 3% over subscription revenue of $8.6 million in the prior year. Syndication and licensing revenue totaled $900,000 for the current quarter, an increase of 47% over revenue of $600,000 in the prior year.

Looking specifically at TheStreet.com's subscription business, excluding the impact of the ratings print business which we outsourced in Q2, we see some positive trends that reflect the impact of our efforts throughout this year to address the customer acquisition issue we discussed last quarter.

Of total deferred revenue of $13.6 million at the end of the quarter, deferred revenue specifically related to TheStreet.com's subscription products increased to $12.1 million or 4.5%, as compared to the $11.6 million in deferred revenue on TSC's subscription products at the end of the prior year. TSC subscription bookings increased by 2.3% to $6.9 million and although our number of subscribers decreased by 4% to approximately 86,000 subscribers, our average annual revenue per subscriber increased by 12% to $388, up from $348 per subscriber in the third quarter of last year.

Through our ongoing work with external subscription consultants and the strengthening of our internal subscription marketing team, we have started to see very good ROI on our SEM activities targeted to our subscription products as well as improvements in key aspects of our subscription funnels and sign-up flows. We are increasing our SEM spend in Q4 in a very targeted fashion, and believe we will continue to see improvement in our customer acquisition rates in Q4 and throughout 2008.

The shift in some of our advertiser spend out of the third quarter impacted our gross margin, which was 59.6% as compared to 62.2% in the prior year. We continue to focus on controlling our costs to keep them in line with our expected financial performance. Total sales, marketing and G&A expense was 35.3% of revenue, as compared to 39.9% of revenue in the prior year, as we continue to leverage our operating cost base as we grow, and our EBITDA margin increased to 24.6%, up from 22.6% last year.

Turning to the balance sheet, we generated $1.5 million of cash flow from operations and generated free cash flow of $800,000. Our cash and restricted cash at the end of the third quarter of 2007 totaled $38.9 million.

As we have discussed on recent calls, the company has been carrying a full valuation allowance against our deferred tax asset related to the $139 million in net operating losses we carried into 2007. Based upon the company's history of earnings before taxes over the past nine quarters and an assessment of the company's expected future results of operations, during the third quarter of 2007 the company determined it is more likely than not that it would be able to realize a portion of its NOL carryforward tax assets prior to their expiration. As a result, the company released $16 million of its deferred tax asset valuation.

Due to the reversal of the valuation allowance, this amount has been reflected as a benefit to the current-year tax provision. This was a non-cash income item, and has no impact on our cash paying tax rate, which will continue to be 2% for the foreseeable future as our net operating losses continue to offset our taxable income.

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

I will now turn the call back to Tom.

Tom Clarke

Thanks, Eric. Before I take your questions, I would like to share with you the growing excitement we all feel at TheStreet.com as we continue to broaden our lines of business through both organic growth and accretive acquisitions. The landscape in which we operate is undergoing rapid change and consolidation, and we are well-positioned to be a leader of this change. Stay tuned; more to come.

I would now like to open it up for questions.

Question-and-Answer Session

Operator

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

Mark May - Needham & Co.

In terms of the unique user and page view stats you gave for the quarter, was that at all impacted by the Corsis acquisition?

Tom Clarke

No, it was not.

Mark May - Needham & Co.

In terms of the advertising slowdown in the quarter and the push back, you made a comment that they have returned early in the fourth quarter. Does that imply that you would expect for advertising growth to accelerate in the fourth quarter versus the 23%, 24% growth that you had in Q3?

Tom Clarke

Just to clarify, Mark, they have come back in the fourth quarter, and it's the fourth quarter and beyond; as you can imagine, some of these campaigns range longer than a quarter, depending on when they come back in the fourth quarter. But we would expect an acceleration of the advertising growth rate in the fourth quarter.

Operator

Your next question comes from Richard Fetyko - MCF.

Richard Fetyko - MCF

Just a follow-up on Mark's question with regard to the acceleration on year-over-year growth rate in the fourth quarter on the advertising line. Is that with or without the Corsis acquisitions and the other acquisitions? Is that organic?

Eric Ashman

Just looking at organic advertising growth, it will accelerate over the growth rate that we saw in the third quarter.

Richard Fetyko - MCF

As you become a more and more a complex and broad online financial media company with multiple web properties, I'm just curious how your sales process is adjusting? Are you selling across all these properties as separately, combined? Where are you in that? I would imagine over time you want to sell them as one buy.

Tom Clarke

That's a great question, Richard. Currently our idea is to sell it across all of the sites, because we think there is a tremendous amount of leverage being able to do that. However, we're very cognizant of the fact that different sites can retain different rates, and this will probably be especially true with the BankingMyWay acquisition, because we think that when you get into the hyperlink situation there, that the rate card on that is going to be significantly different than what we probably see at TheStreet.com or what we see at Stockpickr!. I think MainStreet is yet to be determined. But ultimately, we would like to sell it across the network. We're looking for the correct people to put in each of those positions as we move this forward.

Richard Fetyko - MCF

Looking into 2008, you have multiple initiatives that will drive page views and sales. I'm curious if you could rank them by your current perspective of what will be the biggest growth drivers and leverage in 2008?

Tom Clarke

It's always hard. I'm a simple guy. As you know, I really only look at a couple of metrics. I look at revenue growth and EBITDA growth. Those are the things that I focus on, so I tend not to look at any one of these things. But when we look at the initiatives, we've got a lot of exciting initiatives. The redesign of Stockpickr!, we think, will have an effect for us. We certainly believe that the redesign of TheStreet.com, something that hasn't happened in about eight years, is certainly going to have an effect not only in terms of traffic drive and engagement and activation, but also on behalf of our advertisers, who we're going to give them a better experience integrating with our site.

I think you know that we are all extremely excited about what MainStreet and the potential that MainStreet brings to our organization. We think it's the natural complement to the strategy we have of broadening our content and our reach and the advertising opportunities it has for us. We think that will be a significant one. Equally as excited about RateWatch and BankingMyWay and how that can move in and how we can monetize those sites.

Just going back to what we said on Friday, if you think about the RateWatch business, that business alone is accretive to us. So anything we can get on the BankingMyWay side will be important. If you think about the rate card on BankingMyWay, we could be under BankRate, but we'd still be higher than anything that TheStreet.com has. So when we look at this, it's really as we've said in our script here, that you can take our content and you can marry it with the higher margin offerings that they have, and our overall margins are going to go up.

We're so excited about all the things, to put any hierarchical order into any of them, I think, would not be fair. I think that on their own merits, each of them are going to be significant contributors to us.

Richard Fetyko - MCF

With respect to BankingMyWay, do you expect the revenues from that, the incremental revenues as you deploy that content, to be coming from the rate tables and the content that will be on MainStreet and other websites that you have or on the BankingMyWay.com itself?

Tom Clarke

I actually think it will be a combination. I think the majority is going to come from the BankingMyWay site, because it's up and running today and we can make that integration seamlessly. I think the secondary place where it will come is from the MainStreet site. I think TheStreet.com will always be a driver of traffic, just because of the 6.3 million uniques we have. But in general, I think BankingMyWay on its own and MainStreet will be predominant.

One thing not to forget, I think there are tremendous syndication opportunities associated with the data that's associated with both RateWatch and BankingMyWay, in terms of tables for newspapers, for other website services that we could provide and put on other sites to either drive traffic or just drive revenue. I don't want to overlook the fact that I think there's a big opportunity there also.

Operator

Your next question comes from Michael Moskoff - MRM Capital.

Michael Moskoff - MRM Capital

Can you tell me or quantify how much advertising was deferred from the third quarter into what you now say is coming back?

Tom Clarke

Could I? Sure, I could give you a number but frankly, we don't want to do that for a lot of reasons. I can tell you that whenever money did get deferred, we certainly have seen it come back in the fourth quarter, so we are feeling really positive about it. It really was, as Eric described, a Perfect Storm scenario with the volatility, especially in August, because in August we saw record traffic and volume rates to TheStreet.com. That really set it up for September, because we saw a tremendous increase in traffic and then you had the market conditions where our financial advertisers were very late in the quarter, that didn't give us a chance to really recoup it from the non-financial advertisers.

But you know me, I'm pretty much a straight-shooter. We always tell you how it is. I can tell you it has come back in the fourth quarter.

Michael Moskoff - MRM Capital

So it was the financial advertisers that showed the caution that you expressed before?

Tom Clarke

That's correct.

Michael Moskoff - MRM Capital

Did you say, just as clarification, that the unique visitors for this quarter was 3.6 million?

Eric Ashman

6.3 million.

Tom Clarke

Just one thing on the clarification of the financial versus non-financial. You would have set it out and we would have thought that if the numbers would have come in where our external expectations were, you would have seen growth in both the financial and the non-financial category. So it was that everybody pulled out from financial. The financial was solid and very good, and would have been great except for the delay that they put in some of their campaigns.

Michael Moskoff - MRM Capital

Is that the reason why you're saying the revenue was the $14.36?

Eric Ashman

Correct.

Tom Clarke

Michael, just to go down that path, just so you understand, even if you just did a straight mathematical formula, let's say the external expectation was 5.1 million, and you looked at the number of pages we got at 321 million, if you did the math, you would understand with the explosion of the page views you were going to see that RPM come down anyhow in the quarter. As Eric had mentioned in his script, it will come back in the fourth quarter in a meaningful way.

Michael Moskoff - MRM Capital

As far as subscriptions, you said 86,000 for this quarter?

Tom Clarke

Correct.

Michael Moskoff - MRM Capital

Now last quarter, just for clarification, you had said 86,000 but I wasn't sure if that 86,000 included 5,200 of the Ratings?

Eric Ashman

Last quarter it did not, so those subscribers came out at the end of the second quarter.

Michael Moskoff - MRM Capital

So just for apples-to-apples, last quarter it was 86,000 minus the 5,200??

Eric Ashman

No. Last quarter was 86,000, and the Ratings subscribers were out. We outsourced the Ratings print business in the early part of the second quarter. So that 86,000 subscribers at the end of Q2 is a clean number. That is simply TheStreet.com subscribers.

Michael Moskoff - MRM Capital

So you had flat sub growth for this quarter, sequentially?

Eric Ashman

Sequentially, that's correct.

Michael Moskoff - MRM Capital

But the revenue number went from 379 to 388?

Eric Ashman

That's correct.

Michael Moskoff - MRM Capital

Last but not least, regarding the cash, it went down $11 million from last quarter to $38 million. The two acquisitions that you guys came out with this quarter encompasses about $29.4 million, at least according to your press release. Where is the cash going to be after these purchases?

Eric Ashman

As you know, the BankingMyWay/RateWatch acquisition happened after the end of the quarter. So we paid $16.9 million in cash as part of that deal. Subsequent to that acquisition, the cash balance will be approximately $22 million.

Michael Moskoff - MRM Capital

Then the other acquisition occurred prior?

Tom Clarke

That's correct.

Eric Ashman

That's correct. The Promotions acquisition happened on August 2nd, so the cash impact of that is reflected in this cash balance at the end of the quarter.

Michael Moskoff - MRM Capital

Obviously, when you guys say accretive, you take into consideration the interest income that you're not going to be deriving any more, right?

Eric Ashman

That's correct.

Operator

Your next question comes from Bill Lennan - Broadpoint.

Bill Lennan - Broadpoint

Could you tell us what expenses you recognized from Corsis in the quarter? It would be great if you could tell us cost of revenue, marketing and G&A buckets.

Eric Ashman

To answer your second question first, we're not reporting Promotions as a separate reportable segment so we are not breaking out the different cost of sales, sales and marketing and G&A buckets. When you asked the question with respect to what expenses we recognized related to Corsis, more specifically, what do you mean?

Bill Lennan - Broadpoint

We know that you did $2.3 million in recognized Corsis revenue in the quarter. I'm wondering what expense number goes with that? You brought in $2.3 million of their revenue. How much of their expenses is in the P&L?

Eric Ashman

Ultimately, I'll go back to the guidance we gave when we first announced the acquisition, which is that the acquisition itself in the third quarter would not have a material impact to the bottom line. The goal when we do any acquisition is to, as quickly as possible, integrate and intertwine the businesses and start to leverage off of each side. That has been particularly true with Promotions. They have taken on a significant amount of creative work for us to augment our internal creative team, and we've also started to create a tremendous amount of leverage between the technology teams.

The reason we do not treat these as separate reportable segments is because we want that integration to be as thorough and complete as possible so we can get leverage out of the businesses. So we don't break it out that way, but the guidance that we provided at the time of the acquisition still stands.

Bill Lennan - Broadpoint

Is the $2.3 million a strictly linear number? In other words, the deal closed August 2nd. Is $2.3 million approximately two months' worth of revenue? Or is there some lumpiness in there?

Eric Ashman

No, that's about two months of revenue. It's very linear within the quarter.

Operator

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

George Grose - American Capital Partners

Just to dovetail back again on Corsis, if you did $2.3 million, it sounds as if the acquisition is generating more revenues that I guess you had anticipated. Is that due to cross-sell synergies?

Eric Ashman

There's a little bit of that. It certainly performed very well for us in the quarter. We were certainly happy with the top line performance of the business. So certainly, there's some top line synergies. As Tom mentioned, Corsis actually worked with us on a number of campaigns that rolled off across the site in Q3, and you'll see more of them in Q4.

So that's certainly a part of it in the business, and Tom also mentioned the type of clients that they are winning and that they have won, including Shell and some others. So the business is performing very well.

George Grose - American Capital Partners

When do you expect them to be fully integrated?

Eric Ashman

It's an ongoing process. We're very pleased with the progress we made in the third quarter. As I said, they have already been very much involved in creative activity that we've done to augment our creative team, and there's been a lot of integration already with the technology group. There will be more of that going through the fourth quarter, and it will probably play out into the first and second quarter of next year as we continue to do that. As you know, even before the acquisition, they were very much involved with our business. They're still finishing up the development of MainStreet, and they are finishing up the redesign on Stockpickr! as well.

Bill Lennan - Broadpoint

On the advertising revenues, the growth in the non-financial advertising revenues, what's behind the sequential growth there?

Tom Clarke

I think it's really the fact that over the last couple of quarters we have continually talked about broadening our reach. I think the 6.3 million uniques gives you the blueprint for that, where we're reaching a different type of audience, we've got great demographics on the site and the non-financial advertisers are having successful results. I think that's what's really doing it. So they continue to come back for larger campaigns over time, and that's always a positive for us.

George Grose - American Capital Partners

In terms of the traffic drivers, can you give us your top five drivers?

Tom Clarke

Again, we are a site that we get a lot of direct traffic coming through TheStreet.com. So if you said about 40% of the traffic comes directly to us, then we've got all our portal and distribution deals where we've got traffic. So all of that combined is probably another 40% or so, and the rest is stuff that comes in through different deals we have. One of the things we signed up with AOL, so that well help us in the upcoming quarter drive additional traffic.

George, the one thing you have to remember, and this is where the redesign is going to play a large role for us is we get very little, if any, traffic from search. We just weren't set up to do it; our URL structure is not good for that. I think going forward, that is where low-hanging fruit for us is out there for us to take advantage of.

Just compare us to any of the sites or companies you cover and compare our traffic metric from search with them, and I think you're going to find where, if we're not at the bottom, we're certainly very close to the bottom of traffic there. They typically have numbers that are north of 20%, so it's a big opportunity for us.

George Grose - American Capital Partners

So I guess it looks like the traffic that you have now is just the beginning here?

Tom Clarke

Correct.

George Grose - American Capital Partners

Lastly here on Stockpickr!, it looks like you added 25,000 portfolios in Q3. What is behind the growth? Also I see you have some advertisers. How are you doing in terms of monetizing the site?

Tom Clarke

I think, in terms of growth, again, we continue to be innovative on the Stockpickr! site. One of the things we launched during the quarter is from TheStreet.com's Ratings business, we actually give any security that's in a portfolio on Stockpickr! a letter grade, so we actually are rating your portfolios now.

One of the things that happened is we've given them another very value-enhanced attribute when they are on that site. So that obviously has helped with the growth of the portfolios.

When you think about the monetization, again, it goes back to a question that was asked earlier about the opportunity for us to sell advertising across the network of sites. One of the things we are doing is we have ads that we can run across all the sites, and we've got some specific advertisers who want to be in that community. So we are seeing increased monetization for it going forward.

The other thing about traffic, and we mentioned in our prepared remarks, where if you have a stock in your portfolio and it's mentioned on any of the various lists that we generate from there, like 52-week high or low, or whether it's mentioned in TheStreet.com video or whether it's mentioned in the recap of Jim Cramer's Mad Money, we have a variety of different places where, if a stock gets mentioned, we can alert you and then bring you exactly there.

So for those people who are actively involved in the market and want to see what's being said about their stocks, we make it a very convenient place for it to happen.

Operator

Your next question comes from Brian Murphy - Sidoti.

Brian Murphy - Sidoti

Tom, in general, could you tell us if you are seeing any change in the length of advertiser commitments or the size of ad buys?

Tom Clarke

We have, actually. If you look sequentially, we have seen that the length of the contract has probably gone down a little, but not as noticeably as one might expect with some of the market volatility that you've seen. The size of the buy is actually staying pretty fairly constant.

So all in all, it's a very small change from what we had seen sequentially from the second quarter. Now, we're going into a period that is the strongest quarter of the year so we expect that those metrics will only get better, that they won't deteriorate.

Brian Murphy - Sidoti

Your sales and marketing expense looks like it decreased pretty significantly sequentially. Can you just give us an update on where the salesforce stands, how many heads do you have there now? What are your plans for additions, now that you're adding all this content in these various areas?

Tom Clarke

The reason why the expense is down, obviously, is because the ad revenue is down. Part of it is that you've got the sales commission expense associated with that. If you think about where we are going forward, we obviously are looking to increase the ad sales team. Right now, we're at about 14, 15 people. We would love to see that get into the 20 range.

We think, across the network of sites, that we're looking for opportunities to really leverage that now and make sure we have the right people for the right site. As we've said earlier, I think when you look at a BankingMyWay, it's got unique opportunities for us. Because what we've seen is that people do want the information and certainly, when you get to CD rates and stuff like that, where they want the lowest rates. Advertisers love the competition, that if you had one site out there that consistently were going to raise levels, the fact that we can be out there and be a counterbalance to that just gives us the opportunity. So for us, it's about putting the right ad sales staff in with that opportunity.

Operator

Your next question comes from Richard Fetyko - MCF.

Richard Fetyko - MCF

Just a follow-up to that question on the sales force. I'm just wondering what other areas are you looking to hire, how aggressively? Where do you need to add people at?

Tom Clarke

Well, when we look at this thing we have, obviously, BankingMyWay. Then when you think about when we have MainStreet, that's going to give us another opportunity to really drive a sizable amount of traffic into an area where we're going to have a lot of non-financial advertisers. So in those two areas specifically, we're looking to hire additional people to really be able to focus on that. Whether we singly have them focus on that or we have some primary people that again, work within the network of sites, we're making that determination over the next couple of weeks. Since MainStreet is launching in the beginning of the year, we have some time for that.

But I think again, it's really our collaboration across what we call the network at this point, and we think that's where the opportunity is going to be; we talk to the same advertisers. It's not like the people who would be interesting in advertising on BankingMyWay are not people we don't already know. To some degree, we have relationships with them now. The relationship may be channeled in a different way, but the fact that we're talking to those types of companies, from a financial perspective, is going to make that conversation and dialogue easier for us going forward.

So we think that's where a lot of the leverage is going to be. What we want to do is consistently do what we've done; hire very smart, aggressive people and put them in a position where they can succeed when we marry their skill sets with our needs. That's really what we're trying to do.

Richard Fetyko - MCF

What was the headcount at the end of the quarter? The total headcount for the firm?

Eric Ashman

About 250 people.

Richard Fetyko - MCF

Will the BankingMyWay site be also based on the Corsis technology platform?

Tom Clarke

Yes. As we move that forward, they will immediately go onto that platform. Again, consistent with what we talked about on our last call, the fact that we can leverage the efficiencies of the technology of any of these sites across a common platform, that's our plan, and we're going to move that over to that platform as soon as possible. In fact, that integration has already started.

Operator

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

Mark May - Needham & Co.

If you're fortunate enough to see another spike in traffic like this in the future, where your sellthrough has gone down, your RPMs have gone down, are you in any better position to maintain your sellthrough with the Promotions.com business, or maybe even BankingMyWay, as you start to work with other types of advertisers that maybe you aren't today? With Promotions.com actively working with McDonald's and others, is that part of the synergy here?

Tom Clarke

Yes, that's absolutely part of the synergy. I thank you for bringing it up, because it's exactly where the thought process that we have had in creating this network of sites goes. That's one of the reasons why it's important for us to stay focused on being the premier online destination for money, because that's the commonality between all the network of sites. The fact of the matter is having Promotions, having BankingMyWay, should we have had a scenario where we get tremendous amount of traffic surge or market volatility on TheStreet, we now have places to really leverage this opportunity for us again, because we're speaking to the same suite of advertisers. So we think it's going to have a tremendous benefit for us going forward.

Operator

At this time, there are no additional questions in the queue. I would now like to turn the call over to Mr. Tom Clarke for the closing remarks.

Tom Clarke

I want to thank everybody for being on the call with us today. As I mentioned earlier, we're in a very exciting period for TheStreet and we look forward to having our next update with you at the end of the fourth quarter. Thank you.

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Source: TheStreet.com Q3 2007 Earnings Call Transcript
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