theStreet.com IPO: Shot Or Shout
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The one factor not easy to value in the mix of wares brought to the table with theStreet.com's IPO today is Jim Cramer's shouting style.
Financial news site theStreet.com (NASDAQ:TSCM) priced 5.5 million shares at $19 per share through Goldman Sachs to start trading today. I think TSCM could pop past the $45 range today as investors push it higher on the fervor of the first day. I don't think it would be unusual to see shares trade in the $60s while the market moves to gobble it up, institutions dip and flip and retail investors look to a brand they recognize.
But how does theStreet.com match up with rival MarketWatch.com?
Let's see what the abacus hath wrought, some of the numbers I crunched here:
|pro forma ipo|
|IPO price or price May 11||$ 19.00|
|Market cap||$ 448.52|
|Long term debt||$ -|
|Working capital||$ 110.34|
|Enterprise value||$ 338.18|
|1Q99 revenue||$ 1.99|
|1Q99 loss||$ (7.18)|
|Projected '99 revenue||$ 12.25|
|IPO cap/paid sub||$8,794.51|
Both theStreet.com and rival CBS.MarketWatch.com have enjoyed a high profile with the Internet investing public, MarketWatch (NASDAQ:MKTW) to a strong IPO of its own recently and climb to $130 per share in its run before settling in the $60s of late.
On a revenue multiple basis I estimate MKTW trades at 55x 1999 revenue vs. a trailing multiple on 1998 revenue of more than 110x.
IPO market value per sub is north of $8,700 or 160% premium to the value of an Amazon.com customer, which one could argue buys more than $99/annually from Amazon and maybe should command a higher valuation than a Street.com sub.
$8,700 is also a premium to the value of an ISP subscriber by about 250%. And ISP subs pay $19.95 per month, $10 bucks more per month per subscriber than theStreet.com. Different models but values for thought.
For the latest quarter theStreet.com posted $1.99 million revenue, 56% from advertising and 35% from selling subscriptions at $9.95 per month. I project theStreet.com could generate $12.25 million revenue this year, implying a $673 million market cap at MKTW multiple levels, or $28.54 per share (which I bet will be ignored by investors as they push this up today).
Yet the market and multiple may not be in synch with its peers as theStreet.com followers and Jim Cramer disciples jump on board in these first few steps for theStreet.com, first giant leaps of faith for investing kind.
The leap is based partly on what I see as high salaries paid to CEO Kevin English who inked a $350,000 base salary (plus $100,000 bonus) employment agreement with theStreet.com in October, 1998. I believe English is worth it but I prefer to see a leader more in line with the 'sweat for equity' side of things.
English also has rights to sell his 83,333 shares in the IPO with the underwriter's greenshoe.
Cramer's position in theStreet.com will be 14% pro forma the IPO or about 3.4 million shares.
At IPO News Corp. took a stake in the firm for $7.5 million, with talk to develop a cable show for Fox featuring theStreet.com editorial people, notably Cramer as well as former San Francisco Chronicle columnist Herb Greenberg (whom I believe has a great style to his writing).
This was apparently the same show idea that was shopped around to others without a taker earlier. News Corp (though News America) owns about 2% of theStreet.com. Another media company that took a stake in theStreet.com was New York Times Company, back in February. The two have agreed to cross promotion and share a newsroom. NYT owns 6.5% after the offering.
Percents and personalities aside the gut-level question is can theStreet.com make it on subscriptions and advertising, to support the expectation likely to be built into its valuation from day one?
The common myth on the Internet for those not in the know is that subscriptions don't work. People want free. That's not true for value-added content. Granted, value-added content is rare and based on the expertise of those creating it more than anything.
I can foresee theStreet.com subscriptions doubling or hitting 100,000 within the next 18 months. At the same time ad rates should remain some of the strongest on the Web at between $51 to $68 as advertisers reach out for this desirable demographic.
On the risk side, competition in the news space is intense and theStreet.com tends to be general in its opinions, witty but not actionable. Also, may of its talented staff never rise above the vocal chords of Cramer. I think Greenberg is often difficult to hear amid the rattle and hum.
Overall looking past the numbers and discounting ahead some sheer adrenaline, I see investors giving theStreet.com a big rush today. What matters more is where it is in 6 months. So far theStreet.com has a shouting chance, if not more.
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