TheStreet.com announced that it has hired an investment bank to "assist its Board of Directors in considering possible strategic alternatives". Quoted in the press release, CEO Tom Clarke says:
You can't get much clearer than that: TheStreet.com is for sale.
"Our Board believes that this is an opportune time for us to explore alternatives for enhancing stockholder value and building upon our accomplishments in both the electronic publishing and securities research and brokerage segments of our business. As we participate in this process, we will continue to focus on ways of strengthening these businesses."
Ever since Dow Jones, the publisher of the WSJ, announced that it was acquiring CBS MarketWatch for $519 million in mid-November, there's been speculation that TheStreet.com would be sold. TheStreet.com's stock spiked on that news, but has since pulled back. This press release suggests that TheStreet.com may be finding that it has to work harder than expected to sell itself.
Why is TheStreet.com taking longer to sell than CBS MarketWatch?
First, TheStreet.com isn't making money. It reported losses for the first three quarters of 2004, though it's expected to break-even on an EPS basis for the fourth quarter of 2004. Second, potential acquirers could view the stock as expensive: the consensus estimate for TheStreet.com's 2005 EPS is $0.13, placing the stock at a forward P/E of over 31. Third, The Street.com launched a research and brokerage business for institutional investors in 2002, and that likely makes it a less attractive acquisition target for pure media companies. Fourth, TheStreet.com's brand seems to be overly dependent on founder James Cramer. Fifth, the company lost at least one high-profile contributor and revenue generator - Herb Greenberg - to CBS MarketWatch during 2004. And sixth, TheStreet.com doesn't seem to be a very attractive bet on the growing Internet advertising market, since it generated only $1.7 million from advertising in Q3 versus $5.7 million from subscriptions.
One possibility, perhaps suggested by the press release, is that TheStreet.com is looking to exit the research and brokerage business so it will become a more attractive target for media companies. The problem is that doing so would reduce TheStreet.com's revenue by over 10% (based on Q3 numbers), making the stock look even more pricey when valued as a multiple to revenue. It would also signify a reversal of the company's stated strategy to diversify its revenue sources away from paid subscriptions.
In its own coverage of the story, TheStreet.com reported that "in a meeting with the company's senior executives Wednesday afternoon, Clarke said that since the CBS MarketWatch deal was announced, he had received numerous inquiries about TheStreet.com".
Two other observations. There is a significant opportunity for independent firms to re-think the traditional research business and to provide research to hedge funds. Some firms, like the Gerson Lehrman Group and Majestic Research, have moved aggressively to provide non-traditional research. But TheStreet.com's Independent Research Group failed to differentiate
itself from other research services, and as a result booked only $1 million of commission revenue in the third quarter of 2004.
Finally, the proliferation of small, targeted Web sites and the rise of RSS pose a risk to firms like TheStreet.com and Yahoo! that aim at broad news coverage and analysis. For example, I've argued (modestly) that this site provides better coverage and analysis of Internet stocks than CBS MarketWatch or TheStreet.com precisely because it is more focused.
Full disclosure: at the time of writing I'm short stock in TSCM.