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For the last few weeks, CBS MarketWatch.com CEO Larry Kramer has been denying rumors that the company was about to run out of cash. On Mar. 30, he finally put those rumors to bed with the announcement of an $86 million injection from MarketWatch (MKTW) investors CBS Corp. and Data Broadcasting Corp. "We fully expect this should take us to profitability. But it also gives us cash on hand for potential acquisitions and expansion in Europe," says Kramer.
In the deal, CBS chipped in $30 million of in-kind promotion, and $13 million in cash. DBS, of which the Financial Times Group owns a 60% share, kicked in a stout $43 million in cash. That increases the stake of these two companies in MarketWatch to 34% each. More important, it gives MarketWatch more ammo to continue a winning battle against chief competitor TheStreet.com (TSCM).
According to Web-usage statistics from Media Metrix, MarketWatch garnered 3.2 million unique visitors in February, as compared to 1.4 million for the TheStreet during the same period. MarketWatch's readership has consistently been double that of the TheStreet in recent months, in a clash of Web business models.
"POWERFUL THING."
MarketWatch has long espoused the free-content model, where advertising serves as the main revenue source. With higher numbers of readers and the willingness to distribute content through numerous channels, MarketWatch locked up sweet branding deals with Internet behemoths America Online and Yahoo!. "When you are one of the two or three partners that are producing content for AOL and being branded, that is a powerful thing," says Jupiter Communications senior analyst David Card.
In contrast, TheStreet opted for a paid-subscription model, arguing that readers would value original content from highly compensated journalists. Web surfers, however, have refused to pay for news content, save for The Wall Street Journal -- the only mass-media company that has claimed some success with subscriptions. Lagging revenues and slow subscription growth at TheStreet have plagued the company. In a model shift, TheStreet recently began offering big chunks of its content free to Web surfers, including some commentary from its vaunted columnist lineup.
But TheStreet is still clinging to a quasi-subscription model with its new site, realmoney.com, where it hopes to aggregate the most popular columnists and again ask readers to pay. That leaves some analysts skeptical. "I am very bearish. I think subscription-based models will fail online. It locks you into a much smaller audience," says Carolyn Trabuco, an Internet-content analyst with First Union Securities.
EURO BEACHHEAD.
TheStreet does have one bright spot: It has started to gain on MarketWatch. In the first two months of this year, the company chalked up more than a quarter-million new unique visitors, while MarketWatch's number has remained fairly stagnant. Some of that may be due to the TheStreet's launch in Europe -- a move MarketWatch plans to match in three months. TheStreet.com CEO Thomas J. Clarke says he expects more impressive viewership numbers at the end of this quarter, thanks in part to his European beachhead.
And with $119 million in the bank at the end of 1999, TheStreet.com has no cash worries. Clarke claims that, when the playing field is level and TheStreet offers most of its content for free, his company will come out on top. "We have a great brand loyalty with our readers," says Clarke. "We get e-mails all the time from our subscribers, with them saying how they have made money reading TheStreet.com."
But getting new readers on the Web today is much more expensive than it was a few years ago. And advertisers have responded to that reality by putting a premium on placement at the highest-trafficked sites. "From our point of view, we grew when it counted. We spent when it counted. We are already No. 1 by a long shot," says MarketWatch's Kramer.
KEY DEFECTIONS.
Clearly, MarketWatch has a lead in revenues. Last year, the company snared $24.9 million, while losing $60.9 million. That compares with TheStreet's $14.3 million in revenues, while losing $33.6 million. And shareholders have given MarketWatch a hefty premium over TheStreet. According to Prudential Securities analyst Michael Legg, each MarketWatch share is valued at about 11 times projected 2000 revenues. TheStreet's share carry less than half that valuation.
The discrepancy may have something to do with the rash of key staff defections TheStreet has suffered, including its West Coast bureau chief, Kevin Kelleher, who recently jumped to Internet magazine The Industry Standard. Clarke claims he is having no trouble attracting and holding talent. And, to be sure, MarketWatch's stock is trading well off its 52-week high of 107. Both stocks have been hammered over the last two days, as the Nasdaq has plummeted. MarketWatch closed on Mar. 30 at 34 3/8, down 3 1/8, and TheStreet closed at 9 7/8, down 1 3/16 (vs. a 52-week high of 71).
While no one expects TheStreet to close its doors, analysts are mixed on the company's prospects. Legg says he thinks it will come back and sees profitability in 2004, a year later than MarketWatch. But First Union's Trabuco has a hold recommendation on TheStreet and thinks it may even be acquired. Says Trabuco: "I think TheStreet.com is in an awkward, lousy position." For the foreseeable future, MarketWatch looks like the top dog, while TheStreet may need a complete model changeover to catch up.
By Alex Salkever in New York EDITED BY DOUGLAS HARBRECHT
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