Recently a colleague queried me: “Let me know if you think there’s any thing left there… cramer’s buying!”
Response below:
TST piques my interest for one reason: the state they are focused on “transition from primarily serving retail investors to also becoming an indispensable data and business intelligence source for institutional clients”, which I think is a better strategy than mesmerizing fools online with its sage advice.
I am skeptical of the demographics of their retail clientele. Since their media business hinges on access to that segment of the population, I fear that it will get “found out”. That said, its averaging $3million in revs over the last 11 quarters.
From the filing:
· #1 Website with readers having a portfolio value over $1 million;
· #1 Website with readers having investable assets over $500,000;
· #1 Website with readers having household income over $75,000; and
· #1 Website with readers checking stock quotes.
Really? Who checks quotes on TheStreet.com? Subscribers perhaps? Confounding. Do the niche sites attract a wealthier demographic? Does wealth necessarily correlate with sophistication? I don’t know. There doesn’t seem to be much in-depth content on the site. If sophistication beckons for anlaysis beyond the perfunctory, I don’t see the purported subscriber/reader matching up to the content offered. Of course, I can’t speak to what is beind the paywall.
It is true that the name is loosely synonymous with “financial information online” and that is a draw for ad dollars. How long does the ruse last?
Does the media business dwindle over time? Mobile traffic up 217% ytd and 35% of uniques are mobile. “Flat is the new up” — says the CEO (of the media business). Which probably means about to crack to the downside. Right now, 70% of traffic comes from desktop and they explicitly state that desktop users are critical to media sales. Would untrammeled migration to mobile devices be deleterious to the subscription business as well as the media business? A potential hairline fracture in the B2C story, in my opinion. I’d inquire about this phenom at any opportunity.
The chief menace to the story (imho) is its association with Cramer. Am I naive? Does Cramer have animalistic appeal? Is there really no sex in the champagne room? Perhaps, as is the case with WWE there will always be a steady flow of animals who get turned on to cramer/cnbc/madmoney cycle. They churn, others take their place, the cycle continues. But a cursory google suggests that his charm is waning (bottoming?). CNBC and its ilk are despondent, at best.
This begs the question: how much of the subscription business is tied to the Cramer brand? Difficult to discern. The company claims its 20% per the most recent call (~$13mil of TTM).
I spoke to a couple of sales gents (who quoted me different rates for the same product). The “deals” were only available “this week”. Anyhow, one guy tried to entice me to “action alerts plus” – Cramer’s real-time calls. Out of 80,000 subs, 50,000 are AAP, he declared jauntily. Of all the products, this was the one that was the most sought after! So, roughly $10 million in revs/year at the discounted “special” price and $20 million a year at the full rate. Unclear what the average subscriber pays. So, perhaps the $13 million (20% of revs) figure is about right?
As a sidenote: on a third call in to the sales desk, the lady tells me that $199 is a rate avaiable year round. Also, a comprehensive subscription package known as “The Chairman’s Club” costs $2k (via phone) or $5K (online) per year. Pick a rate! Per salesperson #1, they purposely keep the subs down to 300-400 people to “maintain exclusivity”. Odd, no?
Let’s assume that all media traffic is driven by the love of Cramer which amounts to about $12 million per year in revenue. Then, if Cramer related subscriptions are (conservativley) about $15 million at an average of $300 per sub per year and 50,000 subscribers, rather than $13 million per the company, total “Cramer Exposure” for the year about $27 million on the high end. TST says only ~20% of revenues are exposed, but I think its more. No other fools on that site are household names. Trailing twelve month revenues at ~$68 million. What if he drops dead?! Probably an aggresive haircut to take $27 million of the topline though. Hmm.
B2B seems solid, predictable. At 400 staff in Chennai and 40 in Wisconsin = $1.8 million in wages. Roughly 30 million in revs on a TTM basis. 90%+ renewals on The Deal. Deal + RateWatch = 30% of revs or ~20mil.
Sentiment is at all time lows for the likes of Cramer and CNBC. What I can’t tell is if its “bottoming”. With WWE, the WWE consumer knows that he/she is being “entertained” — does the TST consumer also know this? Or are we evolving to a world where this kind of shit is no longer tolerated? If so, the B2C business is at risk. Yet the co states mix will stay roughly 55% B2B and 45% B2C despite all the talk of transition!
Taking off $20 mil (instead of the aggressive $27mil) from the top line for Cramer Exposure (cocaine risk) + Media Sales gloom we’re at just above ~1x revs. At $30 mil in cash (of course enough deferred revs to offset), basically breakeven operations and 6% div to boot — still doesn’t sound like a no brainer. Nor does it seem like a 0.
To answer your question, yes I think there is something left but I don’t think it has much to do with its media properties aka “the front porch” — and thus the comparisons that they make to Vox, Buzzfeed and BusinessInsider are moot. What do you pay for the B2B biz? At $30 million in sales, and assuming operating margins are same as blended (roughly 3%) — its a 1 million pre-tax perpetuity at best? Then you’d be getting the rest of the business for “free”, I suppose. That’s a bit extreme, but doesn’t seem cheap given feeble B2C.
JG
PS:
BC Partners, a London-based private-equity firm, agreed to buy financial-data provider Mergermarket Group from Pearson Plc for 382 million pounds ($624 million). Nikos Stathopoulos, managing partner at BC Partners, said in an e-mailed statement today that the company will team up with Mergermarket Chief Executive Officer Hamilton Matthews’s group to invest “in the growth of the business through product development and geographical expansion.” Mergermarket, which was founded in 1999, operates in 65 countries and controls brands such as Debtwire, DealReporter, Infinata, Wealthmonitor, and Xtract Research according to the statement. The London-based company had revenue of 100 million pounds and operating income of 25 million in 2012, Pearson said.
Welcome
Nice leadoff right there.
Really could/should be so much more at TST …. i.e. “We estimate that 41,500 customers pay roughly $350 per annum ($14.5 million in totum) for your newsletters. This is nothing to scoff at but a fraction of the 400,000 to 500,000 subscribers enjoyed, by (we believe) The Motley Fool Stock Advisor and Stansberry & Associates Investment Research – two wildly more profitable competitors which charge similar prices (We estimate that each of these competitors yield $25 to $45 million of pre-tax earnings for their private
owners.) Given the strength of your brand, it both amazes and frustrates that
subscriptions to your products are so paltry.”