Friday, October 2, 2015

TheStreet Is for the Individual Investor Who Invests Like an Investment Banker and Venture Capitalist

Smart Businessmen (woman) are smart Investors because they invest like businessmen (women).. You buy the businesses for the long term, you don't trade tickers.


 Individual Investors who have an Investment Banking Mentality and a Venture Capitalist Vision can own TheStreet (NASDAQ: TST) for less than a $60 million Market Cap. 

 Company sits with $31million in cash and generates $5 million a month in sales.
 TheStreet is a pioneer in the Online Financial Sector and is a leading digital media company that :


  • trades publicly
  •   6.2% yield 
  • with the stock selling for a near 52 week low under $1.65. 
  •  The franchise value alone along with the brand media content and distribution it will continue to grow market share. 
  •  Recently Henry Blodget's Business Insider sold for 6 times fwd sales @ $422 million.)
  •  THeStreet at 6 times $60 million sales would equate to 600% return on your investment. 
  • B. Riley has a Price Target of $4.00 per share
  •  If the street was valued at $100 million it would be a near $3 price. With high dividend the bottom may have formed here in the stock.
  • Where else will you get 6% on your money

15 comments:

  1. The issue is the preferreds. Tech Crossover Ventures has a strike price north of $14, and so far has not been willing to take a penny less. This effectively blocks any chance TST sells, and thanks to other clauses limits the company's ability to use stock to acquire (not that it is a viable option given the stock's value right now). Until that TCV hangover is fixed, management is going to have trouble breaking out.

    This is a company that seems like a go private no-brainer. No debt, plenty of cash, and without public co expenses/option expenses that 1 cent/share q loss would be breakeven or better. But without TCV, which surely marked down their investment some time ago, playing ball nothing is going to happen.

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    1. True. The $55 million is convertible into 3,856,942 common @ $14.26. plus the 1 million warrants @ $15.68.
      TCV has received 26 dividends @ $0.025 or $2.5 million.
      Subtracting the $0.65 dividend adjusted, the cost gets closer to $13.61.

      Not what they were looking for I'm sure but I'm sure there are plenty of investments made by VC firms in 2007 that are worthless today. So the bright side they still have a shot.

      TheStreet has been through some real market turmoils in the past 19 years and have survived fundamentally, while I can think of thousands of companies that have crashed and burned over that same period.

      http://investor-relations.thestreet.com/releasedetail.cfm?releaseid=588363

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    2. But read the transcripts of recent conference calls. Activists have called on them to update the situation with TCV, and beyond saying TCV are not interested in negotiations.

      Don't underestimate what a bind the stake puts management in. It limits their dividend payout, it limits their use of stock as an M&A currency. And it effectively puts a cap on the stock because TST does not move on takeout speculation. Notice it did nothing when BI was bought. That is because investors think that unless there is someone out there willing to pay a 700% plus premium (to get near $14/share) there can be no talks.

      So the company can't take itself private, despite its cash, lack of debt and strong cash flow. It can't do a stock-based acquisition. And it can't/unlikely to be acquired. That more than anything is what explains the share price, and that is not something easily resolved.

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    3. I'm aware of the bind.
      But they have made acquisitions. two acquisitions since 2007. (in cash) The Deal and BroadEx.
      They still have $34 million in cash.
      No reason to sit on the cash if they can spend it to grow.

      I have to believe the Spear fund and the Cannel fund (if they still own it) and TCV all want to increase shareholder value, as does the management of TST, so believe that cooler heads will prevail and it the company will grow and the stock price will as well.

      I would think the new director Kramer will be instrumental in guiding the company forward.

      I understand the issues you highlight and I am aware they are real but I think all will work out.

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  2. web traffic for BI is corrected at 75mm a month. The street at 5mm month. BI has international footprint, where TS is mainly USA. I just don't know if its that easy a comparison. two different revenue models. Most of cash is deferred Revenue. They do have tax loss carryforward of $60mm, but my be limited by ownership change. The other issue is the pay cramer $2.5mm a year guaranteed If CNBC or cramer go away, this may be a problem. Just trying to understand the calc of value. The MDL purchase also changes the makeup of this TS. They had no revenue growth organic rev growth.

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    1. Web traffic is mostly irrelevant because TST gets 70% of its revenue from subscriptions, and has said the ad-based will fall further. With the outlook for web ads, that is a good thing. Should the ad environment rebound that would be all upside for TST, though I wouldn't bet on it.

      You are correct though that the big differentiation is revenue growth. Though most of that growth is new and (so far) unprofitable. TST I'd argue has a better long-term model because subscriptions should hold up better than ads, though there have been issues growing that business. I'd argue TST is better off in Europe right now thanks to acquisition BoardEx, which is primarily Europe-focused. BI might have more of a front page presence than TST in Europe, but TST's European revenue is much higher.

      One of the bull cases for TST is for the company to succeed in cross-selling TheDeal to BoardEx users in Europe, and cross-selling BoardEx to TheDeal users in the U.S. On paper it makes sense, though to be fair they have no yet shown results. The bull case is they eventually will, the bear asks if not so far, then when?

      Cramer is what it is. They do pay him a ton. But he drives subscriptions, and his products are among their most successful. If he disappears the huge expense will go down faster than the subscription drop off since they are year-long deals, though it would be a LT issue. The company is seemingly trying to build other businesses to mitigate Cramer, but they aren't there today.

      They are running a 1 cent EPS loss most quarters. I think if they can get that to breakeven the stock could double just on a return to radar screens. With the dividend as a backstop, to me that is not a bad trade. Though as a LT investment, a lot of uncertainty is out there. I think Axel overpaid, and I wouldn't bet my cash that anyone is going to come in and offer that sort of a premium to anyone else, let alone TST.

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  3. Well that 6x annual sales would only get you to $10/share or so, and BI gets benefit for growing sales so likely gets a better multiple than what TST can currently expect. I fear the BI deal makes things more difficult for TST management because it gives TCV a reason to stay stubborn and hold out for full recovery. That's fine unless, as I believe, the BI deal was more of a one-off with a VERY motivated buyer than it was a sign of average valuation. I don't see another Axel out there ready to strike at a premium.

    I agree with you that the current valuation is absurd. There were recently some high-profile departures. If TST can cut just enough to turn a 1 cent loss into breakeven or a 1 cent profit I think stock would quickly climb back onto radar screens and trade where it was 18 months ago or so. Which would be a nice quick return, especially with as you say a good dividend. But double digits seems a long way away.

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    1. Yes it is a long way to go. Henry Blodget compare the digital media space to the cable networks in the late 80's , early 90s.

      In May, TheStreet added 5 new video programs.

      http://newsgrade.blogspot.com/2015/10/henry-blodget-axel-springer-is-smart.html

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  4. Great comments. I will reply to each one over the weekend.

    I am measuring Risk/Reward.

    $57 million market capitalization. Subtract $34 million in cash, you get $23 million valuation for the business,

    $23 million is a low risk valuation , especially with the 6.2% dividend.

    For a company that generated $2.28 million in operating cash flow for trailing twelve months , the stock is trading 10X op. c/f. ttm. (operational cash flow was softer than Q2 FY2014 due to acquisition expenses.

    The underlying business is valued at 1/3 sales. At 1 times sales it would be $60 million plus $34 million cash , ($94 million mkt cap) $3

    There is a great deal of value just being a public entity in addition to the fundamentals.

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  5. Q2 2012 TST shares were $1.40 and the company announced they were discontinuing the dividend.

    Without Dividend, Shares rose to a high of $2.92 by the 1st Quarter 2014.

    Q1 2014 TST started to pay dividend again and shares have declined to current levels.

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  6. http://www.valuewalk.com/wp-content/uploads/2015/10/newsmediavaluations.jpg

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  7. Here's a crazy idea. TCV needs an out. Would they be willing/interested to reinvest some to fund a buyout of Yahoo Finance and combine it with TST? Something where Yahoo gets cash plus some minority stake (up to 49%) and TST remains public.

    The benefit for TST would be a new retail front page with much more traffic. Since they are really only using the front page to try to gain leads for the newsletters and pay products, the added exposure of the Yahoo Finance home would give them a lot more possibilities/a lot more traffic. It would also allow them to de-couple from Jim Cramer some, and perhaps be seen more on its own merits (I believe whatever they do they should change their name to break from the past.)

    For Yahoo, they are under pressure to sell their core assets since the tax-free spinoff is over. This would be a chance for Marissa to monetize a chunk of the business and keep a stake to benefit from any upside. It would also give them via the stake exposure to the subscription business that the TST management is trying to build to counter declines in display. Finally I believe they could also work out a deal with Newco to continue to serve adds so it would keep some of that business.

    Just a quick thought and not sure on details, but the two businesses in a vacuum would seemingly benefit from each other. No way TST without TCV could afford to buy anything like Yahoo Finance, but if TCV was willing to get creative instead of just sitting on its stake forever it seems like there is an opportunity to try to figure something out.

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  8. Not sure of the costs and math involved but I follow your idea. Not so sure if TST is interested in advertising model. But the traffic could be converted into subscribers.

    Here's a tweet from Spear Point to Cramer from Monday

    https://twitter.com/SpearPointLLC/status/666281978082136064

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  9. Agreed they don't want to grow advertising. But they apparently want to keep their store front/free site. The Y! Finance address would be a HUGE upgrade. I am sure the costs are somewhat higher but not substantially, especially since there are lots of redundancies (I believe both companies have a video studio and newsroom and both on-air talent and reporters can be consolidated). If they could attract just a fraction of the traffic into subscriptions it would be a huge increase. Both Y-Fi and TST have close ties to CNBC so that works, and it would be mutually beneficial to continue the job both Y-Fi and TST feeding content to Tumblr and other related sites.

    It makes a ton of sense operationally, especially considering there are few obivous partners for TST that would either need them enough to pay a premium or would help them get scale. TST risks being an also-ran, much as Y! is on the broader internet category. I don't know if there is an easy math way to do it, but from the standpoint of putting two companies together this makes more sense than almost anyone I can think of with TST.

    Interesting on the tweet. I wish they would elaborate.

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