What’s Up With TheStreet.com?

TheStreet.com (TSCM) shares are sliding this afternoon in the wake of a post-earnings conference call with investors which raised questions about the status of contract negotiations with co-founder Jim Cramer.

Earlier today, the company reported Q4 results right in line with analyst expectations. On its conference call, the company repeated its policy of not giving specific financial guidance, other than to say it expects net margins and gross adjusted EBITDA in 2008 will be higher than in 2007.

The company did acknowledge that it could be affected by a weakening economy. “As we all know, the economic environment has grown more challenging over the past few months, and there is great uncertainty as to how weak economic conditions might become and the impact this might have on our advertisers, subscribers and visitors to our network of sites,” CFO Eric Ashman said on the call.

One tidbit that might have made investors uneasy was a brief comment from Chairman and CEO Tom Clarke about the status of negotiations of a new employment agreement between the company and Jim Cramer. Clarke noted on the call that the agreement scheduled to expire December 31, 2007 was extended on the same terms through February 15, 2008. One day before that, on February 14, the agreement was extended once more on the same terms, this time through April 15. Cramer’s writings are a key driver to the site; he also has a 6.4% stake in the company, of which he is a director. It’s not in either side’s interest to let the arrangement expire; but the need for a series of short extensions certainly hints at a drawn-out negotiation process.

Meanwhile, as the AP is reporting, Cramer recently sold 30,000 shares of the company under a pre-aranged trading plan.

TSCM today is down 96 cents, or 8.4%, at $10.42.

Comments

[Frank Li]

"DOW JONES NEWSWIRES: TheStreet.com (TSCM) said Tuesday that it extended the employment term of its co-founder Jim Cramer to April 15.

Cramer, host of CNBC's "Mad Money," will continue to receive a $1 million salary, according to a filing with the Securities and Exchange Commission.

Under the terms of a previous extension entered in December, Cramer's employment agreement with the financial news company was set to expire on Feb. 15.

Cramer serves the company as a commentator and as an adviser to Chief Executive Thomas J. Clarke Jr. He also serves on the company's board and is the company's largest shareholder."

Am I the only person wondering why the contract extension was for only 2 months, like last time?

Full disclosure: short TSCM.

[Lisa]

The real story here is disappointing page views. In its note, ThinkEquity analyst William Morrison said:

"On its conference call, TheStreet reported 4Q07 unique visitors of 6.4M (up 42% Y/Y), modestly above our estimate of 6.3M. Page views were 266M (up 9% Y/Y), which was significantly below our estimate of 342M. The shortfall in page views was attributable to the company testing many new AJAX and Java features of the newly re-designed thestreet.com and stockpickr sites during 4Q07, as well as the company rationalizing pages that yielded low ROI for advertisers. We are not as concerned about the weaker-than-expected page view growth as page views have become a significantly less relevant metric for user engagement over the past 12 to 18 months."

He should be concerned about weaker page views. TSCM's new website splits articles into fewer pages because users no longer tolerate the page-view juicing they've been doing for the last year. The new site will result in significantly fewer page views, and the jury is out on whether the massive focus on video will pay off.

My guess is that TSCM refuses to give guidance because the early results of the new site are weak.

[Lisa]

BTW, I wouldn't be worried about Cramer's stock sales in terms of valuation -- they're under a pre-arranged plan, as you pointed out. The problem with them is that it shows that Cramer wants to reduce his holding in TSCM over time, and that means that a year from now it won't be to both sides mutual interest for him to stay involved. He probably makes a lot more money per hour of his time from his Mad Money show.