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Moreover, TheStreet.com recently made the unforgivable error of overreaching on its financial projections. It warned Wall Street on Sept. 19 that it wouldn't deliver on earlier revenue targets (analysts were expecting sales of around $8 million) but would meet expectations for a loss of 37 cents a share. In the second quarter, the company reported $7 million in revenues and a net loss of $13 million, or 52 cents a share. NO VALUE. As a result, TheStreet.com shares are going through the floor. It's now trading around $3.13, down from $9 just over a month a ago and light years away from the $70 high following its May, 1999, initial public offering. At this level, the company's market cap is roughly equal to the amount of cash on its books. It has $88 million in cash, and its market cap is only $84 million. Of course, it's also burning through that cash -- at a rate of about $1.5 million to $2 million per month, say analysts. But considering its war chest, investors are essentially assigning no value to the business. After changing to an advertising-based business model last June from a primarily subscription-based one, Chief Executive Tom Clarke (who came on board in October, 1999) admits TheStreet.com needs a lot more users before the new model will work. "We need to get bigger faster," he says, suggesting it could be an acquirer or be acquired. But most investors expect it to be the latter, and they're waiting to see who will buy TheStreet.com. While it has been rumored to be up for sale for most of the year, apparently no buyers are ready -- even at such depressed stock levels. That's curious, says Darren Chervitz, an analyst with Jacob Asset Management: "Given the cash, an acquirer who has any faith in the media model would be foolish not to show some interest. But right now, you don't have anybody interested in buying. You only have sellers." "TOUGH STORY." For Investec Ernst technology analyst Michael Davey, the low price, high cash, and inevitable sale make the stock interesting. "I just think they're going to do a transaction that will realize some value for shareholders, especially ones who can get in at this level," he says. When you think about how much money it would take to duplicate the site, "it's trading at a very silly value right now." Still, a deal could be a long way off. "Obviously, they haven't executed," says Chervitz. "They've missed numbers, had to change models and management teams. It's a tough story to get excited about." A deal faces several short-term impediments. Probably the biggest: Few analysts expect TheStreet.com's management to be willing to sell at this level. With funds available to run operations for years, the company doesn't need a deal to stay alive. And if TheStreet execs weren't willing to accept bids months ago when the stock was much higher, it's hard to believe that they would jump at a bid now. SCANT WINDFALL. The company hired investment bank Wasserstein Perella & Co. last February to explore opportunities, and the stock got a temporary bounce. The hope was that it was about to "take concrete and forceful action," says Davey. "Nothing ever came of that." Meantime, investors aren't likely to get excited about the stock until a merger or buyout is actually announced. "Rumors don't help anymore," says Davey. Joel Krasner, an analyst with FAC/Equities, says he's maintaining his buy rating and $13 price target based on the company's cash position and strong brand name. "I'm pretty much waiting to see how this plays out," he says. But he, like other analysts, doesn't expect a deal to amount to much of a windfall for investors since, even if TheStreet.com would agree to it, it's doubtful another company would pay a huge premium. To be sure, plenty of pairings would make good business sense. But in the current market, profitable media companies won't want to subsidize TheStreet.com's ongoing operating losses. That may be holding back The New York Times Co., which operates a joint newsroom and has a small ownership stake in the site. "No one wants to take those losses to the bottom line," says Chervitz. "That just wouldn't make sense. As they get closer to profitability, that's when interest from traditional companies will increase." CEO Clarke says the company will be cash-flow positive by the second half of 2001, but he has a lot of proving to do before investors believe him. "O.K., FINE." Several linkups would also make strategic sense. A possibility is Silicon Investor's owner, Go2Net, which is being acquired by Infospace. Telescan, which could use content but has the analytic tools TheStreet.com lacks, could also be a partner. MarketWatch, with a stock price that's suffering from the same market dynamics that are battering TheStreet.com, is another possibility. But each of these options would just give investors stock in another downtrodden Web company. "Investors are saying, 'O.K., fine if I get stock in that entity,'" says Davey. "But where's that entity going?" Clarke points out that TheStreet.com boasts a diverse revenue base, with money coming in from its new subscription sites, advertising, syndication deals, and its new conference division. International operations are also taking off, he says. Plus, Clarke expects to build new opportunities in print and television now that the company has settled an acrimonious lawsuit with Fox News over TheStreet.com's cancellation of a TV program starring its founder, James Cramer. The site axed it after Fox said show commentators were prohibited from touting stocks they own. Fox sued, charging that the company had used the prohibition as a pretext to cancel the show and that TheStreet had plans to move the show to a rival network. That problem may be behind Cramer and his baby, but for the stock to move higher, TheStreet.com really needs "to do something action-oriented," says Davey. "They need to really swallow their pride and admit it was a grand experiment. It will go on as part of another company." Stone is an associate editor at Business Week Online EDITED BY BETH BELTON |
