As earnings day approached, shares of TheStreet.com (NASDAQ:TSCM) rocketed 7% in a day on Wednesday, presumably inspired by hopes of an outperforming quarter. No such luck.

On Thursday, TheStreet.com reported precisely what the analysts had predicted: $0.12 per share, matching estimates, and worse, matching precisely the per-share earnings of yesteryear. Not so much as a penny's worth of growth in sight. In response, the stock gave up all of its pre-earnings gains and more, and today is down a good 14% from its Wednesday high. But was it really so bad?

Few traffic signs
It's hard to say. I mean, there might be some good news hidden in the quarter, but for a professional investing advisor, TheStreet.com is mighty sparing with the details in its earnings releases, and it hasn't improved the situation any by keeping its 10-Q filing close to its vest, either. Management didn't do its shareholders the courtesy of including a cash flow statement with its report, meaning all we really have to go on is the plain vanilla GAAP numbers:

  • Revenue climbed 20% versus last year's Q2, to $14.9 million
  • TheStreet.com's biggest business, subscriptions, practically flatlined, turning in just 2% sales growth
  • Its second-biggest business, advertising, tried to make up the difference with 48% growth
  • The revenue stream that is "other," nearly tripled -- but is only 6% of the total revenue for the quarter.
  • Result: Like I said, flat profits.

Of course, as disappointing as the lack of subscription momentum looks, I must admit that it tallies up with what management has been telling us. Specifically, that TheStreet.com thinks Google (NASDAQ:GOOG), Yahoo! (NASDAQ:YHOO), and Microsoft (NASDAQ:MSFT) have the right idea, and online advertising is where the money is. Management's efforts to grow this side of the business, at least, appear to be bearing fruit.

Rotten fruit
Unfortunately, that fruit seems overripe. You see, the great attraction of an advertising-based business is that additional dollars paid to advertise in an existing space are supposed to drop pretty much straight to the bottom line, boosting margins. That's not happening at TheStreet.com.

Rather, expenses are growing significantly faster than the sales they're supposed to stimulate. Costs of services were up 25% year over year, and marketing costs -- 31%. As a result, costs squeezed operating margins by 212 basis points (down to 20.1%), and squeezed all the hoped-for profits out of the quarter's stronger revenues.

Result: No juice left to trickle down to the bottom line.

What did we expect to read in TheStreet.com's earnings news last quarter, and what did we get? Find out in:

Fool contributor Rich Smith owns shares of TheStreet.com. Microsoft is a Motley Fool Inside Value recommendation. Yahoo is a Motley Fool Stock Advisor recommendation. The Fool has a disclosure policy.