Friend to investors and rivals -- like News Corp.'s (NYSE: NWS ) WSJ.com, Yahoo! (Nasdaq: YHOO ) Finance, Morningstar (Nasdaq: MORN ) , and, oh yes, the Fool itself -- alike, TheStreet.com (Nasdaq: TSCM ) reports its fiscal Q4 and year-end 2007 numbers Thursday morning. How will the Street react to its namesake?
What analysts say:
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Buy, sell, or waffle? Seven analysts walk TheStreet, giving it five buy ratings and two holds.
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Revenues. On average, they're looking for 39% quarterly sales growth to $20 million.
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Earnings. Profits are predicted to rise 14% to $0.16 per share.
What management says:
The folks at TheStreet are busy, busy bees. Last quarter, we learned that the company had inked partnership deals with Viacom (NYSE: VIA.B ) and Time Warner (NYSE: TWX ) , while simultaneously horning in on Bankrate's (Nasdaq: RATE ) market in bank, er, rate quotes with a buyout of Bankers Financial Products.
Since then, TheStreet has refilled its war chest with a $55 million capital infusion from private equity firm Technology Crossover Ventures. In exchange for its cash, TCV gets 5,500 new Series B preferred shares, convertible into 3.8 million shares of common stock at $14.26 per share; and warrants to purchase an additional 1.2 million shares of common stock at $15.69.
What management does:
Perhaps you're wondering: Why does TheStreet need an extra $55 million when its rolling net margin just exploded to 50% last quarter?
Well, as I explained back then, much of the firm's gain was of the "accounting variety," created when TheStreet recognized a "deferred tax asset on a portion of the Company's net operating loss benefits." On a cash basis, TheStreet barely broke even last quarter (although free cash flow for the year stands at $8 million).
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Margins
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6/06
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9/06
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12/06
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3/07
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6/07
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9/07
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Gross
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62.4%
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62.6%
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63.7%
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63.3%
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62.9%
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62.2%
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Operating
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18.3%
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19.5%
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21.7%
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20.7%
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20.2%
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20.3%
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Net
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22.0%
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22.9%
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25.3%
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24.5%
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24.0%
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50.5%
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All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
Meanwhile, TheStreet still had $38 million cash to its name at last report. Was a mere $55 million cash really worth creating the potential for 17% stock dilution?
Maybe. I mean, if all goes as planned -- if TheStreet's shares hit $15.69 in the near future, and TCV converts its preferred stock to common and antes up another $19 million or so to exercise its warrants -- that will make for a total of $74 million in extra cash in TheStreet's coffers. Project a value of $540 million for the whole firm on that future date (34.5 million shares times $15.69 per stub), and TCV will have paid about 14% of the company's future market cap for a 17% stake in the firm. To me, that seems not too unreasonable. TheStreet gets cash today, for use in growing its business and tiding it over to the other side of whatever advertising market-downturn it is that has Rupert Murdoch spooked. In exchange, it gives up 3% stock dilution.
And if Thursday's news is as bad as I suspect it might be, the decision will look smarter still.
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