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TheStreet.com Q4 2007 Earnings Call Transcript 2 comments

February 25, 2008 | about: TSCM

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TheStreet.com, Inc. (TSCM)

Q4 2007 Earnings Call

February 21, 2008 11:00 am ET

Executives

Chaela Volpe – Investor Relations Manager

Thomas J. Clarke, Jr. - Chairman of the Board & Chief Executive Officer

Eric Ashman - Chief Financial Officer

Analysts

Colin Gillis – Canaccord Adams

William Morrison – Thinkequity Partners

Richard Fetyko – Merriman Curhan Ford & Co.

Karl Wong – Needham and Company

William Lennan – Broadpoint Capital

Presentation

Operator

Welcome to TheStreet.com fourth quarter and full year 2007 earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ms Chaela Voelpe, Investor Relations Manager. Please proceed.

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 December 31, 2007 which will be filed with the SEC in the near future.

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

Thomas J. Clarke, Jr.

Good morning. Thank you for joining us today to review our fourth quarter and full year 2007 financial results. This morning I’d like to review our progress in 2007 and then turn the call over to our CFO, Eric Ashman who will review our Q4 and full year financial results in detail.

When we look back at 2007 it will be remembered as a year of defining change for the organization. As I reflect on the commitments we’ve made to our shareholders, we made the statement that innovation, flexibility and the willingness to change will be the keys to our success. 2007 was exactly that. Three acquisitions and a strategic equity investment certainly topped the highlights.

We started the year with a joint venture that shortly became an April acquisition, Stockpickr.com. The community and social aspect missing from our offerings now became a reality.

We then moved in August to acquire Promotions.com. This acquisition will be a springboard for our advertising business and will propel the activation, awareness and engagement of consumers towards our advertising offerings. In addition it gives us stabilizing technology that will be the underpinnings of our network of sites for years to come.

November 07 saw the acquisition of Bankers Financial Products Corp. that brought with it a business-to-business information services company -- RateWatch -- and a business-to-consumer division BankingMyWay.com that we will develop in ‘08 to compete with Bankrate.com.

In late November, we secured an equity investment from TCV that strongly positions us for more acquisitions in ‘08. TCV will also become a valuable business partner who is versed in businesses with similar characteristics to the ones we operate and we expect to leverage and learn from this relationship in a variety of ways.

The end result of 2007 from a shareholder perspective was stock price appreciation of 78% and a market value increase of approximately $230 million. This was driven by top line revenue growth of 29% and EBITDA growth of 26%. We also exceeded in achieving a better balance between our revenue streams as we ended the full year with a revenue mix comprising 59% paid services and 41% marketing services as compared to 70% for paid services and 30% for marketing services for the same period last year.

One of our most positive developments on the advertising side was the continuing expansion of the advertiser base as non-financial advertising revenue comprised 44% of total advertising revenue, up from 27% in 2006. I would expect that non-financial advertisers would comprise 50% of total advertising revenue in 2008.

The organization itself also changed in 2007. We have significantly upgraded our management ranks with the addition of seasoned executives, most recently Caroline Waxler as the Managing Editor of MainStreet. Our acquisitions also brought to us talented and driven executives who will lead us to undertake the challenges and opportunities we have before us.

In looking toward ’08, you may have some concerns about the execution challenges we have in front of us. We entered the fourth quarter with a very aggressive agenda. We had the relaunch and redesign of the Stockpickr website, the redesign of TheStreet.com and a launch of a brand new website, MainStreet.com. The good news is that we successfully completed all of the above within the timeframe we promised.

Let me take a moment to speak about each. First Stockpickr. We redesigned and relaunched the site in December to provide a streamlined user interface and to make the site more advertiser-friendly. The new Stockpickr facilitates more seamless content integration with TheStreet.com and will support new applications such as the addition of user-generated video content. We will continue to utilize the innovative nature of that site to develop new offerings and to continue the development of offerings such as Street Answers, Stock Blogger and Stockpickr portfolio ratings.

Next we relaunched our flagship website, TheStreet.com after an extensive redesign, engaging and user friendly, the site delivers an optimal experience for visitors accessing the company’s award-winning content, authors, guest commentators, enhanced quotater and financial tools and advertisers seeking more efficient content targeting and custom content sponsorship opportunities.

Most recently we launched MainStreet, a free website that presents original entertainment and celebrity news articles that illustrate a relevant personal finance topic. The multimedia editorial content is divided into sections corresponding with distinct life stages. Caroline Waxler, a 15-year media veteran has joined TheStreet.com as Managing Editor of MainStreet.com. Ms Waxler has worked as an investigative journalist and columnist for Forbes, a writer for VH1’s hit pulp culture roundup Best Week Ever, and she is the author of a personal finance guide Stocking up on Sin.

However, the real work now starts as we integrate these offerings into TheStreet.com network and work on driving traffic and advertising dollars to them. We will leverage these sites by extensive linking between them, fulfilling our mantra of producing content once and monetizing it multiple times. We will also aggressively pursue and engage business partners with content and licensing deals to help drive additional traffic.

With the recent launch of MainStreet, our reach is broader than ever before as we continue to introduce a new group of readers to our content. This content extension also holds true for our advertiser base as we can now attract an even more diverse group of advertisers and we are specifically seeing this in the auto, travel and technology sectors. I am confident we have the talent and the resources at our disposal to succeed in these initiatives.

We enter ‘08 with momentum, excitement and a strong desire to continue to build out our offerings in the category of money. The purchase of Bankers Financial Products, RateWatch and BankingMyWay and the recent launch of MainStreet all represent a bright line for the company in terms of expansion beyond the focus on the investing and financial news space. These transactions represent the start of a journey into the money space rather than a final destination.

As we all know, this space is evolving quickly and we will need to be as nimble if not more so than our competitors. I expect us to be aggressive acquirers within the space while adhering to the financial disciplines we have employed including the accretive nature of any acquisitions. Our stated intention of building a destination for all things related to money has allowed others with assets in these areas to open a dialog with us.

In addition, the economic environment we all find ourselves operating in has brought a financial reality in the dialog we are exploring with others that may allow us to proceed on terms we find attractive. We find our pipeline robust and we will proceed as prudently and opportunistically as we can.

As previously disclosed, the employment agreement between the company and Jim Cramer scheduled to expire December 31, 2007 was extended on the same terms through February 15, 2008. On February 14, 2008 the company and Jim Cramer agreed to further extend his employment agreement on the same terms through April 15, 2008. As we are currently in negotiations with Jim, I cannot take any questions on the status of this agreement.

Now let me turn it over to Eric to discuss our financial results in detail.

Eric Ashman

2007 was a year in which we made great progress on our strategic goal of becoming a network destination for all things money, while also delivering financial results that produced record revenue, net income and adjusted EBITDA for both the fourth quarter and the year. We completed one acquisition in the fourth quarter acquiring Bankers Financial Products Corp. which included the B2B information services business RateWatch, as well as the consumer-focused website BankingMyWay. We also secured a $55 million investment from Technology Crossover Ventures, or TCV, in exchange for 5,500 preferred shares and warrants to purchase an additional 1.2 million common shares both at a premium to the stock price on the day of the closing. I will discuss the expected impact of both of these events later in the call.

First, let’s review the financial results in more detail for the fourth quarter and the year. In the fourth quarter, we delivered revenue of $19.9 million, an increase of 38% over the fourth quarter of 2006 and the highest quarterly revenue in our history. Net income for the fourth quarter was $4.7 million or $0.16 per fully diluted share, an increase of 19% over the $4 million or $0.14 per share reported in the fourth quarter of 2006.

Adjusted EBITDA, excluding stock-compensation expense, was $5.8 million, an increase of 33% over the $4.3 million for the fourth quarter of 2006. For the full year ended December 31, 2007, total revenue was $65.4 million, an increase of 29% over full year revenue for 2006. Net income, excluding the impact of a non-cash income tax benefit of $16 million recorded in the third quarter was $15.1 million or $0.51 per fully diluted share, an increase of 17% over the net income of $12.9 million or $0.47 per fully diluted share for the same period in 2006. For the full year, adjusted EBITDA excluding stock-compensation expense was $17.7 million, an increase of 26% over adjusted EBITDA of $14.1 million for the same period last year.

Turning specifically to our revenue streams, marketing services revenue -- which includes advertising and interactive marketing services -- totaled $9.5 million for the fourth quarter of 2007, a 99% increase over marketing services revenue of $4.8 million reported for the fourth quarter of 2006. For the full year, marketing services revenue was $27 million, a 75% increase over the same period last year. This growth was driven by the strong performance of the advertising business as well as by the addition of Promotions.com which we acquired in Q3 of 2007.

Paid services, which includes subscription, syndication, licensing and the information services revenue from the recently acquired RateWatch business totaled $10.4 million for the fourth quarter of 2007, an increase of 8% over the fourth quarter of 2006. For the year, paid services revenue was $38.4 million, 8% higher than the same period last year.

We continue to make progress with respect to the diversification of our revenue. Marketing services and paid services revenue in the fourth quarter of 2007 accounted for 48% and 52% respectively of total revenue compared to 33% and 67% in the fourth quarter of 2006. For the year, marketing services and paid services revenue accounted for 41% and 59% respectively as compared to 30% and 70% in 2006.

We were extremely pleased with the performance of our advertising business in the fourth quarter. We delivered record advertising revenue for the quarter totaling $6.8 million, an increase of 43% as compared to the $4.8 million in the prior year. For the full year, we delivered 42% advertising revenue growth with total advertising revenue reaching a record $22 million compared to last year’s total of $15.4 million. This performance was driven by strong growth in revenue from our non-financial advertisers which increased by 125% in the fourth quarter, representing 52% of total advertising revenue, up from 33% in the fourth quarter of 2006.

We had a record 24 new advertisers in the quarter, a 37% increase over the year with a total of 111 advertisers in the quarter, a year-over-year increase of 31%.

We continued to grow the number of unique visitors to our network of sites with more than 6.4 million average monthly unique visitors in the fourth quarter, an increase of 41% over the prior year. We have also been focusing on improving the monetization of TheStreet.com network which in the fourth quarter included TheStreet.com, Stockpickr and BankingMyWay.

In particular, we focused and continue to focus on reducing the number of lower value page views to strengthen pricing power and deliver a stronger RPM. We delivered 266 million page views in the fourth quarter, representing 9% growth over the same period last year. More importantly, revenue per 1,000 page views increased to $25.59 in the fourth quarter, an increase of 31% over the prior year and the highest RPM we have ever delivered.

With respect to Promotions.com, interactive marketing services revenue totaled $2.7 million in the fourth quarter. The Promotions business was impacted in the fourth quarter by our decision to temporarily turn many of its technical resources toward the internal projects we had underway which are critical to our success in 2008. The Promotions team took over the leadership of TheStreet.com redesign at a critical juncture in the project and led us to a successful relaunch of the site on time and on budget. The team also led the redesign of Stockpickr and the development of MainStreet, effectively leveraging a common technology platform while ensuring that both sites launched on time and on budget.

One of the key strategic reasons for acquiring Promotions.com was to allow us to employ their technical expertise at times when it was most needed and we are extremely pleased with the results of their efforts. As we move past these critical launches, the Promotions team is again focused on external growth to capture the significant opportunity in the interactive marketing services space and recent marketing and rebranding initiatives are already bearing fruit in that regard.

Subscription revenue totaled $8.5 million for the current quarter, a decrease of 4% from subscription revenue of $8.8 million in the fourth quarter of 2006. For the year, subscription revenue totaled $34.1 million, a 2% increase over the same period last year. We had totaled deferred revenue of $16.2 million at the end of the year. Deferred revenue specifically related to TheStreet.com subscription products increased 5% to $11.9 million over the $11.4 million in deferred revenue from TSE subscription products at the end of the prior year.

Subscription bookings for the fourth quarter of 2007 totaled $7.9 million, which was flat as compared to the bookings in the fourth quarter of 2006. Although our number of subscribers decreased by 7% to approximately 86,000 our average annual revenue per subscriber increased by 1% to $382.00 up from $379.00 per subscriber in the fourth quarter of last year.

Syndication, licensing and information services revenue, which includes revenue from the RateWatch business acquired in Q4, totaled $1.9 million for the current quarter, an increase of 142% over the same period last year. The full year total was $4.3 million, a 122% increase over the same period last year.

The impact of slower growth in the Promotions business as we turned their attention towards internal projects in Q4, along with continued slow growth in our subscription business, did have an impact on Q4 margins. Fourth quarter gross margin was 60.9% as compared to 66.1% in the prior year. Full year gross margin was 60.9% as compared to 63.7% for the full year of 2006.

Our adjusted EBITDA margin for the quarter was 29% compared to 30% in Q4 of 2006. Full year adjusted EBITDA margin was 27.1% essentially flat as compared to the 27.7% we delivered in 2006. As I will discuss when I review our expectations for 2008, we expect both gross and adjusted EBITDA margins to increase during the 2008 fiscal year.

With respect to net income, going forward we will have an additional level of detail in our net income reporting as we reflect the impact of the TCV preferred shares on our diluted share count and the impacts of dividends paid on the preferred shares which will reduce the net income attributable to common shareholders.

In the fourth quarter, net income was impacted by two items related to the investment by TCV. First we reported a one-time non-cash deemed dividend of $1.8 million based upon an independent valuation of the warrants and preferred shares issued as a part of the investment.

Second, from the fourth quarter on we will report dividends paid on the convertible TCV preferred shares as dividends paid on preferred stock which will reduce net income attributable to common stockholders in each quarter. Net income attributable to common stockholders for the fourth quarter of 2007, after deducting preferred stock dividends of $100,000 and the one-time non-cash preferred stock deemed dividend, was $2.8 million or $0.09 per fully diluted share.

Net income attributable to common stockholders for the full year ended December 31, 2007 was $29.2 million, or $0.99 per fully diluted share. It is also important to note that starting with the first quarter of 2008 the 3.9 million convertible shares associated with the preferred stock TCV purchased will be included in our diluted share count.

Turning to the balance sheet, we generated free cash flow of $2.6 million for the quarter and $8.5 million for the full year. As of December 31, 2007 cash, restricted cash and cash equivalents totaled $79.7 million. The company has no bank debt. Finally, the company paid its eighth consecutive quarterly dividend of $0.025 per share in the fourth quarter of 2007.

I want to spend a few minutes briefly addressing how we see 2008 playing out from a financial perspective. We started 2008 having achieved two significant milestones with the launch of the company’s redesigned flagship site TheStreet.com and a launch of MainStreet.com. These two initiatives, along with the launch of the redesigned Stockpickr.com in the fourth quarter of 2007 represent the combination of significant efforts throughout 2007 and early 2008. Up until the launch of each of these sites we were capturing these development expenditures as a capital cost which began depreciating upon the launch of each site. Through the end of 2007 the total amount capitalized for the three projects was approximately $2.8 million.

With respect to BankingMyWay, a redesign of that site is currently underway and is expected to launch in the second quarter. We expect to go through several phases of development throughout the year as we develop and fine tune the advertising models and improve the user and advertiser experience in the site. We’ll follow a similar pattern of capitalization and expense as each phase is completed.

We have high expectations with respect to the impact each of these initiatives will have on advertising revenue, providing new inventory that appeals to a broader base of advertisers while attracting new unique visitors across our network to extend our reach. As many of you know, we don’t sell the future to advertisers, we sell past performance. The revenue from all of these initiatives will start to positively impact our business in the second quarter and we expect that impact to increase throughout the year.

On the expense side of the ledger, we will see the impact of our investment to support these initiatives in the first quarter and throughout this fiscal year. We have increased marketing spend in Q1 to support the relaunch of TheStreet.com and the launch of MainStreet and so far we have been delighted with the results. We have also brought on new editorial staff to deliver content for MainStreet and to drive the corresponding growth in our ad revenue, we are increasing the size of our ad sales team from 15 to 20 in the first quarter and we have already made several hires that bring terrific experience and skills to this team.

Throughout the rest of the fiscal year we expect all of our major expense categories to be fairly flat as compared to the first quarter as we look to leverage the investment made through top line growth. As I noted earlier, it is our expectation that we will deliver gross adjusted EBITDA and net margins in 2008 that exceed the margins we delivered in 2007 and we will deliver this margin expansion in many ways.

We will leverage our content across our network of sites and multimedia properties;
We will leverage evergreen content on MainStreet with a foundation of content on the site while having longer shelf life in the content on TheStreet.com.
The ad sales team will focus on selling the network, providing a broader array of options for our advertisers to sync their messages up against the appropriate content and demographics across the network.
BankingMyWay will deliver higher margin advertising models as we deliver a redesigned website and increased functionality throughout the year.
And of course, we’ll manage our growing network through an operational infrastructure that can scale with growth.

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. While we can’t do anything to impact the economy, we remain optimistic that the strategy that we have in place and the success we continue to have in executing against that strategy leave us well positioned to continue to expand our network, increase reach to a larger group of visitors, attract new and more diverse advertisers to our properties and ultimately grow revenue, profits and shareholder value.

We’re excited with how far we’ve come on this road to transform TheStreet.com into a leading financial media company with a network of properties that is a destination for all things money and we’re excited about the road ahead of us.

With that, we will now open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Colin Gillis – Canaccord Adams.

Colin Gillis – Canaccord Adams

Congratulations on a great year, 2007. You’ve got a much broader, more stable platform. But what are you seeing in terms of duration of campaigns on the display advertising side? One of your competitors on a December quarter call talked about some large cancelling of contracts in the month of December, some weaknesses in the display marketplace. Are you seeing advertisers hesitant to commit to lengthy campaigns?

Thomas J. Clarke, Jr.

You know, Colin, to be honest with you we’re actually not seeing that. I think as I mentioned on the call, if you look at what’s happened with our non-financial advertisers we’ve really kind of exploded that over the last year and we’re really seeing that continue. Obviously with the launch of MainStreet we’re seeing some advertisers on the non-financial side that we didn’t have before. So we’re really not seeing any big divergence from either the length of the commitment that we were getting from others or from the opportunity we’re seeing in auto, technology or travel.

Colin Gillis – Canaccord Adams

On the launch of MainStreet it looks to me like you launched that with a couple of key advertisers already like Toyota and E*Trade. Is that fair to say?

Thomas J. Clarke, Jr.

That’s correct. Actually, Colin, just to give you a little bit more color into that we had the advertisers before we actually launched the site and really it was the concept of the site and Toyota was a flagship advertiser in the sense that they had a campaign that they really wanted to touch more of what we would all consider the mass consumer market and that was really the approach that we really wanted to get with MainStreet and it seems to have resonance with the advertisers.

Colin Gillis – Canaccord Adams

And then just in terms of traffic trends, can you give us an update in terms of effort to drive traffic from search engines?

Thomas J. Clarke, Jr.

The search engines I think is going to take a little bit; I mean we’re in our third week since we’ve launched the redesigned TheStreet.com site. We’re seeing better relevance than we saw before but I think the true impact is going to take a few more weeks to really go through and get into everybody’s kind of bailiwick there.

But in terms of just general traffic, we’re pleased with what the site has done. I think that most of the people probably on the call that follow us were really concerned about the fact because we’ve seen it happen in the marketplace when you launch a new site that a lot of the other traffic kind of goes away or doesn’t find itself to the new site and knock on wood, I’m happy to report that we have not seen any of that.

Operator

Our next question comes from William Morrison - ThinkEquity Partners.

William Morrison – ThinkEquity Partners

Eric, could you walk through the organic growth for the various business lines? I just want to make sure I’ve got the organic growth correct.

Secondly, I was wondering if you could address the page views that came in well below what we were forecasting. I think you said 9% year-over-year which would be roughly a 17% sequential decline. If you could talk about the composition of the page view growth in the quarter. Was it below your expectations?

And then if you could comment on what kind of growth we can expect in the first quarter and through the year.

Eric Ashman

In terms of organic growth, I think if you’ve got a specific question in terms of a specific part of the business we can talk about it. As you know, we don’t break out things like advertising revenue and traffic amongst the various sites. What you do have are things like the revenue from the new RateWatch business which contributed approximately $1 million of revenue in Q4, which fell under the paid services bucket. We tried to provide an extra level of detail on the core subscription business. So if you have a specific question about a certain part of the business that isn’t addressed in the comments that I made let me know, Bill, and I’ll do my best to address them.

William Morrison – ThinkEquity Partners

Maybe I missed it; what would the organic growth have been year over year for the total business if you had owned BankingMyWay, RateWatch and Promotions in the year-ago quarter?

Eric Ashman

We generally don’t break those type of things out and I’m not trying to be evasive on it, but again everything that we do gets fully integrated into the business and so I’ve given you the numbers in terms of Promotions if you wanted to pull that out and do that type of analysis, but for instance, Promotions has had already a pretty good impact on the advertising side of the business within TheStreet. They have contributed to a number of campaigns that we’ve run here and what we’re actually finding is that they’re having a very positive impact in terms of picking up things like the value of RFPs and certainly the value of interactive campaigns that we have.

So we don’t tend to look at the business that way, although you certainly have the detail in terms of what Promotions has given and things like that. But if you wanted to back it out and look at it and break it out that way you certainly could.

Thomas J. Clarke, Jr.

But again, we certainly think BankingMyWay, BankingMyWay did make a contribution, small because it was only there for part of the fourth quarter to the advertising business. But it did make a contribution nonetheless that we wouldn’t tend to break out on a go-forward basis.

Eric Ashman

In terms of page views, it actually was very much in line with where our expectations were and I think page views is one of those metrics that it’s very easy to create lots and lots of page views if you want to. What we really have been focusing on throughout the year is monetization. Particularly as we started to do all the research that went into creating the new site, it gave us an update, a lot of data and information about where were monetizing well and where we were not. So we started to do things in Q4 even in advance of the launch of the new site that had an impact in terms of taking poorly monetized page views out or changing the way that people came to them and used them to drive the RPM up and ultimately to bring inventory where we would develop more pricing power across the sites.

When we think about ’08, in our view, page views becomes a much less relevant and important metric for us and I think that this consistent from an industry perspective as well. We are very much more focused on reach first and foremost, number of uniques coming to the network and then time spent and engagement on the site. And as you’ll know even from a new site that we have if you look at things like the new quote page which we’re extremely proud of, you’ll notice that there’s a lot of automatic updated content and java and things like that that don’t require page view refreshes any more. That’s a conscious decision on our part because we think it creates a better user experience and keeps people engaged; that will drive a better result for the advertisers which will help improve RPMs and in that respect, the page view metric becomes less relevant. It is something that we’re less focused on than engagement and number of uniques that actually come.

William Morrison – ThinkEquity Partners

Is it possible then to maybe going forward give us, if page views is not the right metric to be tracking, to give us time spent or some other kind of engagement metric that we can use to track your progress to driving engagement higher? I mean for instance, can you give us what was the average time spent on the network in fourth quarter versus a year ago?

Eric Ashman

We are looking at doing that for Q1 and forward so we are now looking at new metrics that we can use. With the flip to the new site I think we just want to make sure that we’re getting something that we can provide a reasonable comparable on but it is something that we’re talking about which is what are the metrics that we use going forward to talk about the business and I’ll be able to shed more light on that and discuss that in more detail when we get to Q1.

William Morrison – ThinkEquity Partners

And last question, even companies given the uncertain economic environment, companies that historically haven’t been giving guidance have been giving investors some sense of a rough range of what to expect for the year. I’d like to try and push you to maybe give us some framework to think about growth for ‘08 at least with what you’re currently assuming for growth for the top and bottom lines.

Eric Ashman

We’re pretty committed to the position that we’ve taken on this in the past, Bill, which is that we don’t give guidance. What I said in the call and which I think is most important from our perspective is that we are focused on margin expansion. We go into the year feeling very confident about the initiatives that we have and the prospects for the business regardless of what’s going on in the outside world. But we do within that context expect to drive margin expansion. Beyond that, we’re going to stay very consistent with where we’ve been the past in terms of guidance.

William Morrison – Thinkequity Partners

So do you expect margins to be up modestly or 100 basis points, 500 basis points?

Eric Ashman

Again, I’m going to stay very constant with where we’ve been in the past; we never put numbers on it, we don’t put parameters on it. It’s just something that we don’t do. But we do expect actually to grow our margins across the board during the year and to produce a higher result at the end of the year than we did for ‘07. Sorry, I don’t mean to be evasive on it but it’s just the policy that we have and it’s how we’ve driven it in the past and I want to stay consistent with that.

Operator

Our next question comes from Richard Fetyko - Merriman Curhan Ford & Co.

Richard Fetyko – Merriman Curhan Ford & Co.

Back to the question about TheStreet.com traffic trends since the relaunch, could you talk about what you’ve seen so far? Any other changes in behavior of the usage of the site?

A follow up on the Promotions.com. You mentioned that you reallocated some of the resources into internal projects. I was wondering how much do you think that impacted the revenues, the $2.7 million in the quarter, would have been $3 million to $3.5 million? Any guestimate on that?

Thomas J. Clarke, Jr.

When we’re talking about traffic, I think that again I’ll just restate this, we’re very early into the process of the redesigned site but all the metrics we’re seeing are very positive. I think if you’re looking at external reporting on the site itself I would tell you to look at the category; and if you look at the category I would tell you to consistently look at that.

What typically happens in February from January -- you can go back to over a three-year window and you always have a little bit less traffic; we call it the February effect off of January. You have to remember you’ve got a shorter month, you’ve got holidays in the month, you’ve got a lot of people that they’ve got families, they’re taking time away so you always have a little bit of a traffic fall off.

But specifically to us, we’re seeing traffic to areas of the site that we had not seen a lot of traffic before. I think Eric mentioned before how we feel internally about our “page” where that’s seeing a tremendous amount of traffic. We’re seeing more traffic, deeper engagement with some of the stories, almost a follow up to what Bill said before. There’s two things when you think about page views:

We’ve got 25% more advertising inventory on the site than we had before; and
If you look at our story length we’ve lengthened the story to have a better user experience.

All of that might affect page views to some degree but again for us, we’re really more focused on the monetization and we think because of the flash and some of the other things you have with the new technology you don’t see that result in a different page view.

As for the Promotions aspect, I’m going to turn it over to Eric and he talk specifically about the financial impact.

Eric Ashman

I always to hate to put an estimate as to what would have been or could have been, but I think if I recall from the way you were looking at it, Richard, it’s probably a reasonable way to view the world. Promotions did I think $2.3 million in the third quarter based upon the two months that we bought so you would expect it to be north of $3 million certainly for the fourth quarter based upon a full quarter of activity.

Ultimately we felt and we actually made this decision as things progressed that the right thing to do was to bring their knowledge and technology skill to bear particularly on the redesign and so we felt really good about that decision in the fourth quarter and feel really good about the result of that. We think they did a fantastic job for us in all three respects and so now they are back on track in terms of driving it from an external perspective going forward for ‘08.

So I think the range that you’re talking about certainly it would have been reasonable to expect they would have been north of $3 million if those decisions hadn’t been made.

Richard Fetyko – Merriman Curhan Ford & Co.

Do you think that going forward as the monetization improves and the impact of Promotions.com with some of the campaigns is felt do you think that the RPM will continue to rise from the levels of fourth quarter?

Eric Ashman

Two ways to look at that. I think longer term the answer is yes, I don’t think it’s just Promotions but obviously we have expectations that ultimately BankingMyWay will have an impact on that as well. I think generally -- and as you know because you’ve followed the company for a while -- Q4 generally tends to be within the context of the fiscal year the highest RPM that we deliver in a year so I would not be surprised if you see RPM come down a bit in Q1 and then generally we ramp it sequentially throughout the year. But ultimately our expectation is that we continue to improve that number.

So, yes. I think between the impact of Promotions and the impact of BankingMyWay and the things that we’re doing just in general in terms of effectively monetizing the pages that we have and getting better and better at that all the time we expect that we have opportunity to continue to take that number up.

Operator

Our next question comes from Karl Wong - Needham and Company.

Karl Wong – Needham and Company

I was wondering if you could talk a little bit about the sell through rate? I think you mentioned that you had 44% non-financial advertisers during the quarter; that is slightly down from Q3. Could you talk about the trend there?

Eric Ashman

Just in terms of sell-through rates, I actually mentioned this in the third quarter call. We’re no longer going to provide a sell-through rate number and the reason being is that so much of our inventory is now custom inventory as it relates to specific requests from advertisers that it’s almost a number that you calculate on the fly and can ultimately be very misleading.

So with so much of our inventory falling outside of IEB standard inventory and being stuff that we put up on the site and create ad units based upon specific requests -- and this goes to things like sponsor content and sponsor features in particular -- as well as now with the stuff that Promotions brings to us, these more interactive campaigns, you’re actually creating inventory. You don’t have a fixed amount of inventory that you’re selling any more. You’re actually creating inventory as well based upon specific campaigns. So for us, the sell-through rate became a number that was no longer meaningful which is why we got back to focusing on top line revenue and RPM.

In terms of revenue from non-financial advertisers in the quarter, I think what we said on the call and let me make sure that we get this right it was 52% of revenue and that’s up from 33% in the prior year and it’s up from 49% in Q3. So it was actually up sequentially.

Karl Wong – Needham and Company

In terms of the MainStreet traffic, I think you mentioned that one of the rationales for launching MainStreet was to capture a new demographic. To what extent has the users on MainStreet that you’ve seen been from non-TheStreet.com users?

Thomas J. Clarke, Jr.

I would tell you the majority of users that are going to MainStreet are non-Street.com users. All the feedback we’re getting, all the internal metrics we’re seeing are indicating that true to what we thought it might give us it’s giving us a user base that is typically not someone who is the more active individual interested in the market dynamics that really are the focus of TheStreet.com.

So if you think about that kind of longer term, what we originally had thought would be while you might have some people who are on TheStreet go to MainStreet in the beginning, I think ultimately MainStreet will be a funnel of people of to TheStreet as they get more comfortable making looking at all of their finances and stuff like that and I think MainStreet by itself has so many opportunities for extension for content. So I think that’s a specifically important thing.

The 44% you heard, just so we’re clear with that, I had mentioned it in mine and I had said that for the year if you looked at the total advertising revenue and you looked at the non-financial, non-financial was 44% of total advertising revenue during the year. So that 52% that Eric just mentioned was specifically for the fourth quarter. My 44% was for the year and the 27% was versus 27% in ‘06. So again, just really confirming the diversification we had outside of just the financial segment that for years so many people have been concerned about that, that was the only type of advertising we could get.

Operator

Our next question comes from Bill Lennan - Broadpoint Capital.