CEO Interview: TheStreet.com Paves Way to Profitability, Value - January 10, 2001
By Benjamin Luis Morgan-Sanjurjo (bmorgan@stockhouse.com) and Indira Somani (isomani@stockhouse.com)
New York, NY, January 10 /SHfn/ -- In an exclusive StockHouse interview, Thomas Clarke, CEO of TheStreet.com [TSCM] discusses the future of online news, the role he believes the company will play and how he plans to enhance shareholder value.
Like many other Internet companies, TheStreet.com is in a race against time to become profitable. Clarke believes that the company will become cash-flow positive this year, the first step in bringing value to its shareholders. With deep cash reserves, the company recently acquired SmartPortfolio.com, and believes it is in good shape to compete against its financial news rivals. Consolidation in the sector, he says, will be inevitable.
In the last few months, TheStreet.com has changed its business model, moving away from generating revenue solely through advertising. It also shuttered company doors in the United Kingdom, and ended a content agreement with the New York Times--a move that pushed its stock price down below $2 to $1.63 a share. Both decisions, however, were timely and necessary for the business, Clarke says. But what a precipitous fall from grace for a company that commanded a lofty $70+ price in its first day of trading in May of 1999. Along with almost all Internet stocks, TheStreet.com declined steadily last year, and closed Monday at $2.56.
StockHouse: I'd like to talk about the future of online financial news. What do you see happening over the next couple of years?
Thomas Clarke: You're actually asking on a very good day. The web is a dynamic place, it's constantly changing, you don't get bored with it. Yesterday [Wednesday, January 3], the market just kind of goes along up and down a little bit, then all of sudden the Fed rate hits--boom--the market explodes. The excitement… is just captivating for all of us.
StockHouse: So online financial news, in your estimation, has a future?
Thomas Clarke: Absolutely. I think you'll find that online news is going to play a prominent role as we move forward.
StockHouse: There has been a lot of talk about advertising-based Internet business models, and that they maybe don't have a future. Do you agree?
Thomas Clarke: Everybody downplays the importance of advertising in the sense that they think it's going away. But advertising isn't going away. The advertising budget of the big companies, of what they're going to do in an online medium, is growing each and every year and will continue to do so. The 'Net isn't a fad. The 'Net is going to be here.
StockHouse: Is TheStreet.com a dot-com?
Thomas Clarke: First of all, we're happy to be a dot-com. I don't think you're going to see us change our name because I think we've built a great brand there. But I think we're different, in that we're a more traditional media company. Unlike a lot of the other dot-com companies, one of our greatest assets right now is we have a lot of money in the bank.
We've been very fortunate that we've had participants in TheStreet.com such as Jim Cramer or Herb Greenberg or Adam Lashinsky that have come to us from other mediums--Jim from the hedge fund community, Herb and Adam from the print--that have helped us create a very strong brand. When we look at our future, we're really building the foundation for it right now. We've got multiple revenue streams, we've got a conference division that we didn't have before. We've got the book sales that we didn't have before. We're looking at print opportunities. Radio and TV are certainly outlets for us to expand upon. So we're actually feeling very good about the current position that we find ourselves in. So when I look at us, I look at us being more of a true media company with the ability to be much more adept.
StockHouse: If you consider yourself to be a traditional media company, what segment of the online community do you want to service?
If there is one thing that I would aspire to, it's to be able to take our product offerings and tier them to different audiences.
Thomas Clarke: We like the financial segment. I think our roots are in it. It's a dynamic place to be. There [are] a lot of other tiered products that you can generate from it. [American Express is] able to take their products and tier them to different audiences. If there is one thing that I would aspire to, it's to be able to take our product offerings and tier them to the different audiences we're going to service, because they all have different needs.
StockHouse: What audiences have you identified within the financial services sector?
Thomas Clarke: If you're an individual investor, we're your friend on how to make money in the market. The analyst community is under siege right now. During the course of 2000, when they were pushing all their stocks, and writing all these reports, and putting all these recommendations out--they were doing it because they've got a business to run, too, and that's how they generate commission. But we're the friend of the individual investor.
If you think about March 10, when we made a call to decide to take money out of the market, or if you think about Labor Day, when we again said, "Look you've got too much money in the equities market"--when everybody else is saying put money into equities, we're saying, "Take it out." Or if you think about Herb Greenberg's story on Lernout and Hauspie [LHSPQ], the fact that it was a $100 stock, and Herb comes out and says this stock is going to go to zero. I think if you look back in time, and you look at the credibility that we brought to the individual investor, it's there. So I think you've got that audience.
I think you've [also] got the more active trader audience. We've got a product called Real Money that is geared towards the very active investor, and to some degree a trader. And then we serve some of the largest headquarters in the world. There are people who are looking for nuggets of information that they don't have in other places that really give them an edge in the investment decision-making process.
StockHouse: How large is your audience?
Our free side of the business is where we put a lot of content. That continues to grow each and every day.
Thomas Clarke: It's a difficult question to answer, because we've got both a paid audience and a free audience. Our free side of the business is where we put a lot of content. That continues to grow each and every day. Our paid subscribers have flattened off. We thought they would because we doubled the price. The financial community--people interested in the financial news, commentary, analysis, research, information--that community is growing. And I think as long as that continues to grow, that will be good for us.
StockHouse: Can you tell me what last month's page views were? I think I read 127 million (per quarter).
Thomas Clarke: At the end of September our page views had gone up from the previous quarter pretty dramatically. We were looking at good revenues, so we're trending positively, as we thought we would.
StockHouse: So, would 127 million page views (per quarter) be an accurate number?
Thomas Clarke: Correct.
StockHouse: What about broadband? Do you have any plans for that?
Thomas Clarke: Oh, absolutely. I think financial news plays especially well on wireless and broadband. Those are areas that we need to embrace in a bigger and quicker way than we've done in the past, and we see those as opportunities going forward.
StockHouse: A few months ago, we heard a lot about broadband. But recently, perhaps as the market has turned down, the hubbub has quieted, and you don't hear as much about convergence. What is your point of view on convergence? Is that viable, or just a pipedream?
Thomas Clarke: I think it's certainly viable. I think the pullback really has to do with the market. Part of it has also been looking at the opportunity, and saying, "Is there enough of an opportunity [to] really make it a profitable venture at this time?" I have no doubt that convergence is coming, and it will be profitable for the companies that go into it. But I think it's more of a situation of waiting for the technology to catch up with the ideas about technology, because there is always that lag time. Everybody always talks about DSL and cable. But if you go into different states or parts of the country, they can't even get it yet. So while the idea is good, it's not available to all. Until it becomes more mass market, I think you're going to see baby steps. How you monetize it is going to be the real name of the game.
StockHouse: Could you talk a little bit about why you decided to end your agreement with the New York Times?
The New York Times has got their digital property, we have TheStreet.com, and after a while we both thought that we independently learned enough from each other.
Thomas Clarke: Sure. The fact of the matter is, the New York Times has got their digital property, we have TheStreet.com, and I think after a while we both thought that we independently learned enough about it from each other that we could each go our separate ways. At the end of the day it was too costly for both of us to operate it. So our focus is to get [to] profitability as quick as possible, as I'm sure if you talked with them, they would answer the same way.
StockHouse: What about the closing of the office in the United Kingdom?
Thomas Clarke: Any time you make a decision to close an operating subsidiary it's difficult. We put together a venture with an investment group in the U.K. to open up a Street.com UK, and it went live in February [2000]. The intention of it was it was almost an operating entity unto itself. We really didn't leverage content, we didn't leverage technology, we didn't leverage administrative costs--due to the fact that the euphoria in the market place was such that we would take this entity public. Well, when the market fell apart in April and you looked at the long-term prospects of that business, that business wasn't going to get public in the foreseeable future. In conjunction with our U.K. investors, we made a business decision that said it didn't seem to make sense to pour more money into that operation. It's never pleasant to close it down, but for our mandate to get to profitability, we thought it was in the best interests of TheStreet.com to do that.
StockHouse: Are there any other international plans? Our focus is really getting on to profitability domestically.
Thomas Clarke: We believe there are enough opportunities for us domestically, and our focus to get to profitability is that, I would say that's our focus right now. We own part of The Marker [an English-language site devoted to finance and business in Israel], we're a 19.9% owner of that. We share content there, that's been a good investment for us. Our focus is really getting on to profitability domestically.
StockHouse: When do you think that you might become profitable?
Thomas Clarke: We're certainly going to be cash-flow positive in the second half of this year, 2001. That's been our stated objective.
StockHouse: Does the Fed's recent decision to lower rates change the way you do business over the next three months?
Thomas Clarke: It doesn't change the way we do business, but it changes the mind-set of the investors in the marketplace. We were in a period where you would look at the economy, or you would look at your portfolio, and it continued to go down and you'd say, I don't want to look at it today. When they don't look at it, or don't read stories, or are not actively engaged in the market, obviously that affects all of us that are in the financial news arena. Look at trading volume. Trading volume yesterday was tremendous. Well, we had the biggest day we've ever had yesterday. People, when they feel good about things, are more apt to have an appetite.
StockHouse: How does TheStreet.com plan to enhance shareholder value? I came out of a world where profitability is the key to success. And until we get there, we have nothing to really write home about.
Thomas Clarke: The way we are measuring the success of our business is revenue per headcount versus the expense per headcount. Shareholder value will be built when we get profitability. I don't think you're ever going to hear me say we had a blowout quarter, we had fabulous numbers, we're on, when you're losing money. I came out of a world where profitability and making money is the key to success. And until we get there, we have nothing to really write home about. Cash-flow positive is the first step, and we're on track for that. The SmartPortfolio.com acquisition where they bring us additional revenue immediately, those are the kinds of things that I think are going to bring us shareholder value.
StockHouse: Who is your main competition?
Thomas Clarke: We really serve a very unique niche. But when you're in a financial news category, let's face it, there's CBS Marketwatch [MKTW], CNBC, CNN, to some degree Motley Fool. Competition is anybody who has an audience that is reading financial news. So it's pretty wide-range, and I think the competition is going to be less as we move forward, because there [have] been too many dot-coms that have segments of financial news, but unfortunately a lot of them have gone by the wayside. I think you're going to see more of a consolidation within the financial news sector.
StockHouse: Who do you think will be the survivors?
Thomas Clarke: Well I always think the people who have money are going to be the survivors, so I put TheStreet.com at the top of that list. Obviously CNBC, with NBC as a backer, isn't going to go away. CNN is very interesting now, with the Time-Warner/AOL situation, so you assume that somewhere they become engulfed in that, or that becomes more prevalent. CBSMarketwatch has got CBS, and now the Financial Times [PSO], behind it. So I think those are the people you will see as the long-term survivors.
StockHouse: Thank you very much, Mr. Clarke.
stockhouse.com
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Blah, blah, blah. We want profitability. We heard this since day 1. I noted that paid subscriber figures were not discussed. TSCM also is threatened by Yahoo for news feed and MSN.com for commentary.
Site will not make money until these traders start posting their picks and tracking results for the year. Otherwise, they are just taking heads spouting a pick a minute with no accountability.
Ian McDonald has been doing a great interview series in the last two months.
The addition of two new columinists daily added new blood to the same old tired reporting.
The restriction on letting the columnists comment on messageboards is silly since they get to voice their opinions without answering the critics. (ala Herb on Cree)
I don't miss the trading diary by Cramer at all. The ex-hedgie JJC is better than the old one. Little less arrogant. Needs to get a trim so that back section doesn't poke up on TV. <gg>
Jack
Jack |
