Dependent on Coin-Flip Cramer, Will TheStreet.com Sell?

Jan. 5.06 | About: TheStreet, Inc. (TST)

TheStreet.com's stock (TSCM) had a remarkable run in December, making it one of the best performing Internet stocks of 2005. (Painful for me, as I'm short the stock.) The company turned profitable in Q3, because it shut down its loss-making institutional research service. Advertising revenue rose by 26%, driven by increases in page views and unique users. (Q3 page views rose by 13% year over year, and average monthly unique vistors by 32%; press release here.) Then, to cap it all, the New York Post reported December 9th that an acquisition was imminent.

It all makes sense. TheStreet.com is now a pure-play Internet content company with healthy growth in users, page views and advertising. And we all know what good content businesses are worth -- particularly to potential acquirers.

But here we are in January, and there's still no announcement of an acquisition, despite the fact that the company has been on the block for almost exactly a year now. Perhaps soon people will begin to ask whether TheStreet.com really is such an attractive content business.

TheStreet.com is benefitting materially from Jim Cramer's Mad Money TV program. Quote from TSCM CEO Tom Clarke from his Q2 conference call:

… Jim has had tremendous success with the show… and we are starting to see a benefit… There is no tie economically. But what happens is… we are starting to see people that want to find out what Jim is writing about… what he is talking about, what’s owned in his charitable trusts… So we are seeing a tremendous amount of interest coming from that… People are… inquiring about how to access more of the content that Jim writes about, which is on Real Money. So we had a very strong June in subscriptions and… if you look at our orders that were booked, we are seeing the same trend in July… as the show grows in popularity and our relationship with CNBC continues to be worked on I think there is a great opportunity for us. And again, it is marketing lead generation for us with no cost on our side.

… I can’t quantify the number, but our gut feeling is the show is a successful funnel of not only people who become readers of our free site of which is an advertising supported vehicle, but also then they move on to a subscription product...

(Quote from the CCBN StreetEvents transcript.)

That's interesting, because as Mr Clarke pointed out, there's no financial relationship between Cramer's media appearances and TheStreet.com. [Note: Please see correction below.] Yet the company milks its ties to Cramer -- who founded TheStreet.com, after all -- for everything they're worth. Here's an excerpt from a prominent article (URL: www.madmoney.thestreet.com) on TheStreet.com:

Cramer's Mad Money Performance

If you're addicted to Jim Cramer's Mad Money on CNBC, then you've undoubtedly heard Jim say that there is no cure and no 12-step program you can join. Thankfully, now there's TheStreet.com's 'Mad Money' recap.

Every night, we watch "Mad Money". We painstakingly write down all of the stocks mentioned and log them in our database... that's right, ALL of them. Then the magic happens. Our database tracks the stocks throughout the trading day so you can see EXACTLY how they're doing.

Use the "Mad Money Recap" toolbar on the left to comb through over 2,000 of Cramer's stock picks from the last TWO MONTHS worth of shows...

There are two concerns about this. First, who would want to acquire TheStreet.com when it's so dependent on Jim Cramer, but there's no contractual relationship that binds the two together? And second, there's the problem of performance: according to a study by CXO Advisory Group, "Mr. Cramer’s stock market calls since May 2000 have low consistency and approximately coin-flip accuracy".

Now, admittedly the CXO study uses external data, but we know from article above that TheStreet.com itself keeps a comprehensive database of Cramer's stock picks and subsequent performance. So what does TheStreet.com have to say about Cramer's Mad Money picks, which it benefits so much from? The article continues:

Wanna see which picks are working? Where Cramer's wrong? We've got the stats! Wanna search for stock ideas based on Cramer's calls? We make it easy. Miss a show? We've got everything right here... and we'll even email you if Cramer mentions a stock that interests you!

Everyone always wants to know, "Will Cramer make me money?" Well, we can't promise you that, but we can tell you that if you do your homework, there's a pretty good chance you'll be sayin', "Boo-yah!"

"we can't promise you that... do your homework..." Enough said.

Update and Correction

TheStreet.com's General Counsel Jordan Goldstein corrected two points in this post:

"...your post contains two significant errors. First, after you quote TSCM CEO Tom Clarke's statement that there is no economic tie between TSCM and Jim Cramer's "Mad Money" TV program, you erroneously summarize Mr. Clarke as essentially conceding that "there’s no financial relationship between Cramer’s media appearances and TheStreet.com".

In fact, in addition to his television program, Mr. Cramer hosts a radio program called "RealMoney with Jim Cramer." This program is syndicated nationally under an agreement between TheStreet.com and Buckley Broadcasting Corporation, and the net profits of the program are shared equally between the two parties. Radio appearances may not be television appearances, but they are certainly media appearances. See our periodic filings for details on the arrangement and the revenue we receive .

Your second error is more significant. At the end of your post, you wonder why anyone would want to acquire the company "when it’s so dependent on Jim Cramer, but there’s no contractual relationship that binds the two together?" [emphasis in original]. In fact, as anyone who follows the company would know, on August 1, 2005, Mr. Cramer signed a new employment agreement with TSCM, pursuant to which he agreed to author articles for the Company’s publications, provide on-air radio hosting services for the Company’s radio programming, and provide reasonable promotional and other services, subject to his personal and professional availability, through December 31, 2007. See our Form 8-K filed on August 5, 2005 for details."

Many thanks for the correction, and apologies for the two errors.

Full disclosure: short TSCM at the time of writing.

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