Photo Credit: Penn State
Like my friend Josh Brown does, I often don’t know where I will end when I start writing… I know I have something to say, given my own time writing for RealMoney.com, and now having publicly written on financial matters for over eleven years, with thanks to Jim Cramer, who gave me my start.
Recently, a 9% holder of TheStreet sent a letter to Jim, asking him to either sell off TheStreet in an auction or leave CNBC and rebuild the value of TheStreet. The Stock rose roughly 7% on the news. Personally, I don’t think it should have budged. Here’s why:
1) What is a perpetual money-loser worth? TheStreet hasn’t earned significant money since 2007.
2) What is TheStreet worth in an auction? The complainant says:
Despite these improvements TST trades at an enterprise value to 2015 estimated revenues of 1.3. This compares to BC Partners Limited’s acquisition of Mergermarket Group at three times revenue. Morningstar Inc. (“MORN” – $65.97) trades at 3.4 times 2015 consensus revenue estimate. Allegedly, BoardEx competitor Relationship Science recently raised capital at a $300 million valuation compared with its purported $5 million revenue for 2013.
TheStreet is not comparable to these in my opinion. I’ll use Morningstar as my example: it is a comprehensive site offering a wide amount of data about investments, and relatively light on opinions. Where it speaks, it is authoritative, and it has a relatively sticky following, making their revenues more valuable than that of TheStreet. Let’s be real… would you buy TheStreet at the same enterprise value to sales ratio as Morningstar?
3) Selling investment opinions is a very competitive business, with low barriers to entry. If a party is any good at marketing it, and wants to sell a newsletter, there are a lot of people who will buy, as noted later by the complainant:
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. Were you to de-couple from CNBC (where you are understandably prohibited from promoting PLUS) I would hope, nay expect, that subscriptions of PLUS would treble.
I don’t like market newsletters generally, but I know there are a lot of people who would rather pay for opinions than money management services. I often get requests to start a newsletter, but I don’t respect the concept. My detailed ideas are for my clients; that’s the business that I am in.
Jim’s newsletter has been out for a long time. Of those that buy newsletters, most would be familiar with Cramer, and know that the newsletter exists. Even if Cramer came back to TheStreet full-time, I doubt it would get that much more in subscriptions.
4) Also, auctioning off a Cramer-less TheStreet would likely flop. There would be few if any buyers for a such a company that had lost its main writer.
5) Then there is the complainant’s appeal to Cramer as to his legacy:
You are 59. When you lie upon your deathbed, how will you reflect upon on your legacy? Once a $70 stock, TST is now $2.20. You have done well, but how has the common shareholder done?
I have a little insight here. A little less than twelve years ago, I was invited by my Merrill coverage to come to an institutional investor conference where Cramer would be the unscripted keynote speaker. It was a great talk, and at the end of it, as Cramer left, I figured out where I likely needed to be if I wanted a word with him. Sure enough, he came my way, and I identified myself to him as the guy who had been writing to him on bonds for the past four years. He remembered me and greeted me warmly. I told him that I was going to work at a hedge fund. He congratulated me, and said that it was where all the smart guys were going. And then he said something to the effect of:
I wish I were still running a hedge fund. I really loved that.
And at that point, the crowd caught up, and that was the end of my time with him. But when I got home that night, I sent him an e-mail telling him that life is too short, do what you love. Go back to the hedge fund and write more occasionally for the rest of us. His reply was brief as usual, and if my memory is any good it was something like:
Can’t do that. Gotta get the price of theStreet.com over the IPO price.
Even at the time, that made me blink. Make the stock rise by more than a factor of 10? That would be Herculean at minimum.
But, that gives you an insight into Cramer’s mind at one point. He’s already thought along those lines. He’s no dummy. He knows how difficult it would be — and he has pursued that effort for a number of years. My sense is that he has given up, or maybe something close to that. The price of TheStreet has been remarkably stable for the past five years, despite all efforts made…
6) But does Cramer have no legacy from TheStreet? I would argue he does. He enriched the investment writing world in two ways: he created a bunch of young savvy journalists that occupy many places in the broader investment journalism world, and he encouraged a lot of clever investors to write for him.
We are all better off as a result of both of these, even if the benefits never went to shareholders. It’s a tough business, and even the best enterprises have a hard time making money at it.
7) Perhaps the complainant needs to be reminded of one of Marty Whitman’s principles on value investing: “Something off the top.” Control of a company is a valuable thing, and one of the reasons is that a closely-held company does not merely pay the controlling owner dividends, they often receive something off the top. That is true of Cramer here, with a salary of $3.5 million/year. Why should he relinquish that? In his mind, he may think that he has tried to turn it around for years to no avail. If the company is not likely to ever get back to a significantly higher price, why should he knock himself out on a hopeless mission that he has already tried?
8 ) So, with that, let the complainant contact his fellow shareholders and ask for help. I’m not sure they will agree with the prescription, though they might like to see some actions taken. Personally, I can’t get excited about it; I would be inclined to pass, and quietly sell my shares into the current strength generated by the complainant.
Full disclosure: no positions in any companies mentioned here, and as they used to say at TheStreet, I am writing about a microcap stock, so they would typically not allow articles on it without a big warning, if at all. To make it plain: don’t buy any TST shares as a result of what I wrote here. Thanks.