Dueling Fools
July 28, 1999

Cramer v. Cramer
Bull Argument

by Brian Graney ([email protected])

Up-to-the-minute business news. Insightful market commentary. Blunt commentators with bad hair. TheStreet.com has all this and more for the stock-trading, market-infatuated, need-to-know-it-now online reader.

But at its current $700+ million market valuation, is this financial news website operator more like Easy Street or Sesame Street? From this Fool's point of view, I think TheStreet.com's potential makes it an intriguing place to park some money right now, especially if you believe that the Internet has and will continue to change the way that all people -- particularly market addicts -- get their regular doses of information.

But before we get into the potential, let's run through some facts and figures, even though they are rather limited at this point in the company's young life. For 1998, TheStreet.com reported total net revenues of $4.6 million, up nearly 700% from 1997. Page views doubled to 14 million in March from 7 million last December. The company claimed 61,000 paid subscribers as of the end of April, up from 32,000 in December. That's growth, growth, growth, and lots of it.

The website's subscribers pay $99.95 for a one-year subscription or $9.95 for a one-month subscription. Either way, the Streeters apparently like what they are getting in return. Paid user retention so far has been superb, with renewal rates of 85% for annual subscribers and 97% for folks choosing the monthly route.

I'll leave it to Dave, my business news junkie cohort turned worthy adversary, to go over the operating losses for the past two years and the company's cash outflow tidal wave, which stems from the money it has been pouring into marketing its products and building-out its newsroom. I'll also let him hammer away at the fact that the company has admitted up front that it does not expect to have operating earnings of any kind until at least one or two annual accounting periods have passed.

Instead, I'll focus on the quality of the business and what the future may hold for investors -- concepts that are hard to quantify but critical to eventual business success nonetheless.

Outside of being on a Wall Street trading desk and hanging on the phone with the buyers and sellers in the market, nothing can match TheStreet.com's minute-by-minute coverage of the financial markets. Nothing. Real-time television coverage from outfits such as CNBC or CNNfn can come close. But a 30-second soundbite cannot add the context, analysis, and insight offered in the regular, sometimes hourly, updates by hedge fund manager and TheStreet.com top draw James Cramer.

Don't get the wrong impression, however. TheStreet.com is no longer the one man show it once was, now that Philly's best-known financial export is getting much-needed support from an expanding array of commentators and business reporters. These cyber-journalists represent the real future of the company. And if TheStreet.com can maintain its track record and continue to hire top-flight, well-connected reporters away from the nation's major financial wire services and print publications, its future talent pool looks secure.

Growing its newsroom staff will only increase the company's ability to break the big stories and snag the exclusive comments better than any other financial news source on the Web. That's the kind of quality news department that investors interested in this area should be looking for, since the long-term Internet news winners will be the organizations that can get the best information out faster than anyone else. Right now, few financial websites can top TheStreet.com in this area.

And therein lies TheStreet.com's potential, as I see it. Wall Street pros are willing to pay top-dollar for the most current information available, especially if it is from a reliable service. Thus, by building its reporting ranks and providing a timely, quality service that can consistently make traders money, TheStreet.com can serve as a cheap complement to Bloomberg, Reuters, Dow Jones Newswires, and other trading room wire players at the high end. Already, investment firms like Deutsche Banc Alex. Brown, PaineWebber, and Fidelity have signed up to receive TheStreet.com's content on an enterprise-wide basis. That sets the company apart from the other subscription-based financial sites out there and speaks directly to the high quality of its reporting and commentary.

Meanwhile, at the low-end of the trading totem pole, TheStreet.com has the opportunity to loot the core subscriber base of the old-line financial dailies, weeklies, and monthlies as their readers turn to the Web for their information. At some point down the road, the company could potentially scale its business by offering separate tiers of services tailored to meet the needs and wants of traders of differing tastes and experience levels -- creating substantial value by offering unique products sold at progressively higher price points. As TheStreet.com has already discovered, the market is there for the taking.

Any way you cut it, an investment in TheStreet.com right now boils down to little more than a belief that the company can create value at the inflection point as the world shifts to a new financial news delivery system. It's a vote that the traditional business press will give way to the low-cost, instantly available, ever-changing information smorgasbord only a quality online service can provide.

If you don't buy into that line of thinking, then don't bother buying into TheStreet.com. But if you think there may be something to this Internet thing after all, then maybe TheStreet.com could turn out to be a capital appreciation avenue.

Next: The Bear Argument