This past weekend, I asked is TheStreet.com for sale? [Three days later, AlleyInsider echoed the same sentiment].
Today, I was browsing through stocks I’ve been keeping an eye on and noticed TheStreet.com was trading below $10. A nine dollar stock? It was above $13 just months ago. At the time, I was looking potentially at making a large investment in the company. That never materialized. Today, it’s a $290M company, with $50M in cash and no debt, it’s enterprise value is a palatable $240M. I think TheStreet.com will leverage its balance sheet, continue to make more and more acquisitions and eventually be taken off the market. What price? Who knows. So don’t take this as investment advice…
Today I noticed that CNET, too, is trading below its 52-week Low and High range. The stock is just above $7. CNET’s market cap is a respectable, cool $1B. CNET too is both buyer and seller.
But CNET and TheStreet.com are both mid-sized ($100M-$1B) Internet companies that will become part of the wave of consolidation we are seeing, and will continue to see. Here is why:
Four years ago, eBay’s CFO Rajiv Dutta mentioned that seasonality was creeping into the Web. In other words, Internet would still outpace traditional media but that it would not grow year-over-year with no seasonality impacts. According to their earnings call, Dutta added:
In fact, chief financial officer Rajiv Dutta said eBay is likely to see more seasonal shifts in business going forward, with stronger-than-usual fourth quarters.
“We are seeing increased seasonality,” he noted. And in response to strong holiday sales, “we also expect to see increased competition” from other online companies and traditional retailers.
In all fairness, my memory suggested this was only a couple of years ago, but a quick search for “Rajiv Dutta eBay CFO seasonality” brought up the result from 2003. All to say, the Web presents massive growth opportunities for startups, examples are rampant:
- WatchMojo.com relaunched our site and in the 3 weeks since doing so, our streams have gone up 74%!
- Our streams on our syndication network are growing 30% per month and these have 200-500 clips out of our library of 2,500-4000 clips!
- One of the site I consult, FileFactory.com, is an Alexa Top 300 web property and it’s only been around for 2 years!
- MySpace anyone? How about Facebook?
But, these are all young companies. For the Internet bellwethers, which include:
- Commerce: Amazon, eBay, IAC
- Content and Communications: Yahoo!, AOL, etc.
growth will become harder and harder to attain. Sure, international opportunities are grandiose, but this is still very speculative. We have started publishing clips in Mandarin; I’ll be the first to admit this is to showcase what we can do, and will do, but we don’t mortgage our future on that. Ditto with wireless.
Point is, the main way major web companies like Yahoo! and company will grow is through investment. I am not saying that TheStreet and or CNET will become solutions to what ails some of these companies. It is certainly better for some of these companies to invest in smaller, easier-to-integrate assets. Doing the incubator thing does not work: large companies are just not good at incubating from within. Take Google’s plethora of failed products. Yahoo! Ditto. Microsoft? Yeah, right.
But, ultimately, there are simply too many mid to large companies fighting for growth and invariably, you will see a much larger wave of consolidation coming very soon. It’s not so much that large companies feel that they must buy the small and mid ones, it’s that - like we saw with ad networks - a domino effect will cause such consolidation, example: News Corp., buys Dow Jones (WSJ/Barron’s), then GE/NBC buys TheStreet.com (for example), and so on, so forth.
Again, don’t take it from me, learn from history. In 1900, there were hundreds of carmakers in the US. In 2000, there were 3 major ones (2 if consider Chrysler being part of a German one).
Related:
- If I had a billion dollars, arguing, that with a $1B, I could create a company worth $3B in one year.
- Rupert Murdoch’s Shopping List, looking at some of the companies that are on many shopping lists.
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