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Companies try to unlock shareholder value in many ways. TheStreet found itself with a languishing stock price for many years. While the business was not profitable, the company was sitting on a significant chunk of cash. About $39 million of its $127 million market value was made up of cash.
The Business Sale and the Special Distribution
In June 2018, the company sold its RateWatch business for $33.5 million and then sold The Deal and the BoardEx institutional business to Euromoney for $87.3 million.
The company subsequently announced a special cash distribution of $94.3 million, or $1.77/share to be paid on April 22, 2019.
What Remains of TheStreet is Likely Fairly Valued
An investor who buys TST stock today will pay $2.4 per share and get back $1.77/share in special distribution on April 22, leaving $0.63/share invested in the stock. The market value will be $127 – $94.3 = $32.7 million.
This $33 million in market value reflects TheStreet’s ongoing B2C subscription business (think of Jim Cramer’s Action Alerts, and other services like this) as well as advertisement income from its website. It also includes $18.5 – $21.5 million in remaining cash. Let’s assume $20 million for convenience. Therefore, the remaining TST B2C business is actually being valued at $33 – $20 = $13 million ex-cash.
The B2C Profits Not Clear
Let’s take a look at just the B2C part of the business. The 2018 full year revenue in B2C was $27.5 million, which was a decline of 11% yoy over 2017. Subscriptions held its own with just a 2% decline yoy, but the advertising revenues fell dramatically by 32%. However, the company states that the subscriptions are now trending upwards and they are hopefull that these trends and the renewed focus on the consumer facing business will result and solid revenue and profit growth in the coming years.
The company has not broken out the B2C expenses and it is hard to make an estimate as the sale of these businesses changes the business structure, headcount and other operating parameters. However, we know that the company overall has been losing money over the years.
The market is today valuing the remaining business at 0.5 Price/Sales. This is low for profitable businesses, but if the investors expect the company to continue to lose money in the future, this valuation is likely justified. However, it is worthwhile to keep an eye out on any improving fundamentals as it can change the story significantly.
Coming Back to the Special Distribution
It is not worth investing in the company for its special distribution. The satisfaction of getting a large distribution should be balanced by the fact that it is your own money you are getting back, with a significant portion of the distribution will likely qualify as Return of Capital.
The opportunity, if any, lies in the remaining business. As the fundamentals picture becomes clearer, it will be worth a revisit.
PS. It has occured to me that the end game on TST may be the company going private. For a small company like it is now, an exchange listing is unnecessary expense. We will also see if this hypothesis proves out and whether shareholders benefit if this happens.