If the financial information company The Street (Nasdaq: TST) were featured on the CNBC show Mad Money there would be a lot of yelling and pounding. Except the company won’t be featured. While the program’s host, Jim Cramer, tells Americans what to do with their money, and analyzes how other executives manage their business, the company he founded spirals downward, loses money, and continues to pay him millions.
On a number of occasions this week, Cramer, an important part of CNBC’s line-up, made a point of celebrating the fact that he had reached a great milestone. “30+ years of investing. 1 million followers. It’s still only the beginning. Thanks a million, Cramerica!,” he tweeted. However another milestone with no cause for celebration involves The Street, which Mr. Cramer founded. After years of poor management, The Street is in imminent danger of being delisted from the NASDAQ because its share price has dropped so low.
We learned on Saturday that The Street has just laid off 10 more people, including a number of senior business journalists.
There is a great deal to admire about Mr. Cramer’s entrepreneurship, his personal story, charitable activities, and his effort to make markets and investing accessible for a broad audience.
That does not change the fact that for years now Mr. Cramer has taken handsome compensation for sitting on The Street’s board of directors and allowing the company to use his name to market financial newsletters. As the founder he holds a lot of sway, and has stacked the company with friendly management and board members. And for a lot of years, the board of this money losing company also decided to pay a dividend, which is beneficial if you hold a lot of stock as Cramer still does (8% according to filings). Because of so-called standards and practices restrictions put in place by his main employer, CNBC, The Street is likely no more than a side-hustle for Cramer.
The Street has done such a poor job executing its consumer business that for a long time the market has severely discounted the company’s value. And that’s in an environment where news about business and the markets commands a premium from advertisers looking for a high-end audience. What’s more, The Street has the makings of a nice subscription business selling detailed information about deals and the make-up of corporate boards. And the company sits on a healthy cash pile because some years back the management took $55 million dollars in outside investment from a firm called Technology Crossover Ventures, which specializes in funding growing businesses. After a brand has really started to crank, TCV pours gas on the fire. The capital is usually intended to finance even more growth.
So to be clear, year-in and year-out The Street racks up losses and treads water. Cramer is paid millions for his service, the stock price declines, and the guy continues to go on TV to (sometimes quite insightfully) tell others what they should do with their companies and their money. Paying rich fees to founders is probably not what TCV had in mind.
It doesn’t make sense. Or, from another perspective, it’s an opportunity. The Street is an interesting play for investors who look for small, undervalued companies in which they can build a stake and then actively suggest or cajole changes in order to drive value. These activists investors have been writing Mr. Cramer and The Street’s board all sorts of letters for years. The company has consistently dismissed the activists, and, for the most part, these outside firms have never directly threatened Mr. Cramer’s reputation, perhaps for fear of further devaluing the larger company’s brand. The activists are still interested because The Street’s total market value is not that much more than the cash it holds in the bank (some of them may just be holding on because they are underwater on their investment). Again, the company’s consumer facing websites and its B2B products essentially come for free.
Except there is a hitch. As a condition of its investment, TCV, which put in all that cash years ago, demanded, at a minimum, to be paid back its capital before the company can be sold or change hands. They call it a liquidation preference. And that nasty detail has put The Street in even more limbo, because it’s a giant liability. Any buyer would need to pay for the company and pay back TCV.
TCV is a large firm which has, more recently, bet on the growth of online video. The firm put money into a big investment round for digital video provider Vice Media. You’d think it might want to take another look at The Street through that lens. Though it’s likely that no one in the current, or past, management of The Street has yet shown them a genuinely viable plan to build value with corporate governance that seems less hairy (to use a nice word) than it is now.
And this is all happening against the background of huge value being created in the new TV over the Internet ecosystem. Really interesting brands are being built at business news companies such as Cheddar (for millennials) and Real Vision (for more sophisticated investors). And a bit further afield, companies such as Money.net are trying to be low-cost alternatives to Bloomberg. Some of these upstarts now command valuations in the private market which are higher than The Street. Indeed, providing quality information about business and the markets is going to continue to be a thriving business, as is informing a new generation of investors who are figuring out what to do with their money.
But why take the gravy train away? There’s still another $25 million or so to draw down from The Street’s bank account. It’s Mad Money.
Or, Cramer and company can do the right thing.
Steve Alperin is the CEO of FreeMedia, which builds digital media brands. The firm has no financial position in The Street.