The company seems reluctant to hang this sign around its neck, so we figured we would. This would be a perfect time for TheStreet.com (TSCM) to sell itself to a traditional media company! Near peak of bull market, excellent traffic trends, red-hot talent (Cramer), digital site, growing ads. So why is it still single? Presumably, two reasons:
- Jim Cramer (over-dependence and other idiosyncratic risks)
Valuation was indeed tough for a while, but a recent 30% drop in the stock has made it more palatable (see below). We also believe the Jim Cramer risk/over-dependence, though still problematic, is less of an issue than it once was. TheStreet is too small to remain an independent public company forever–the Sarbanes Oxley compliance costs alone probably reduce cash flow by at least 5%-10%–and administrative “synergies” from an acquisition would likely boost it significantly. We therefore wouldn’t be surprised to see TheStreet.com soon become a division of, say, Financial Times’ parent Pearson, The New York Times Company (NYT), or NBC (finally, a real site for CNBC!). Details after jump…
To review, here are TheStreet.com’s vitals:
- $250 million enterprise value (ex cash)
- Approx. $60 million of run-rate revenue
- Approx. $12 million of run-rate operating profit
- Approx. $14 million of run-rate EBITDA
- 18x run-rate EV/EBITDA at a recent share price of about $10.
- About 15x run-rate EV/ADJUSTED EBITDA (synergies).
The stock is off significantly from its recent peak (thanks, presumably, to market weakness and a Barron’s article suggesting that Jim Cramer himself is a short), which would make a buy-out more feasible. Having enjoyed spectacular appreciation at the hands of a bull market and a strong online advertising environment, the company’s long-term shareholders should be eager to lock in those gains–especially with the market environment looking increasingly bleak. So an all-cash deal at, say, $11 (circa 20x run-rate EV/EBITDA), might be just the ticket.
And what about the Cramer risk/over-dependence? No question hit-by-a-bus risk remains: If Jim stopped coming to work tomorrow, the value of the company would probably drop by at least a third. But theStreet.com has diversified in recent years, and there’s plenty of talent aboard. Also, if the company redeployed Jim’s $2 million annual comp–$750,000 base and 2006 option exercise of $1.25 million–it could hire half a dozen brand-name financial journalists and pay them like kings. Together, this dream team could at least begin to replace some of the bereft Cramer fans.
There’s also, undoubtedly, some Cramer blow-up risk: Given his high-octane Mad Money schtick, Jim might eventually say something that will force GE subsidiary CNBC to fire him. But, to his credit, Jim’s lasted a few years now–and survived gaffes that would have destroyed platoons of lesser men–so perhaps the greater risk is his own impatience (or, alternately, declining ratings, if Barron’s is right). Regardless, theStreet would presumably be able to renegotiate or redeploy Jim’s compensation in light of the new circumstances, and the company would do fine.
Full Disclosure: Earlier this year, after I wrote a column at Slate observing that the character Jim Cramer plays on “Mad Money” gives bad investment advice, the real Jim Cramer got me temporarily kicked off CNBC.