4 Things Elisabeth DeMarse needs to do to turnaround The Street

The Street Inc (NASDAQ:TST) announced yesterday its 2011 earnings and the hiring of Elisabeth DeMarse as its new CEO. DeMarse was previously CEO of Bankrate.com (NASDAQ:RATE) and CreditCards.com. Creditcards.com is now a wholly owned subsidiary of Bankrate and was acquired while Demarse was its CEO.

While I had speculated that more drastic action was in the cards for The Street when it announces its 2011 earnings, I am not fully disappointed that there was no sale or reorganization of the company. The hiring of Elisabeth DeMarse is a step in the right direction that will eventually lead to a sale or a reorganization of the company. The outcomes of her previous CEO stints as well as her affiliation with VC firm Austin Ventures lead me to believe that she is a turnaround pro with a solid understanding of digital media particularly in the finance vertical. This is a marked difference from recent management at the company.

As a long time follower and shareholder of the company, below are the 4 main points that Demarse should focus on to turnaround TST,

1) Editorial model – Right now thestreet.com editorial model (not the premium subscriptions) is that of the Huffington Post or Business Insider (what I call an Aggregator+) but with a cost structure that is more in line with the Wall Street Journal or NY Times (world class news organizations). I am not trying to knock the editorial abilities of the staff at The Street, but is The Street a source for breaking news and scoops or is it a site that basically rewrites press releases and summarizes the latest economic reports? Before you answer this question go visit the site and try to recall the last time a major business story that broke first on Thestreet.com. If you want to be an aggregator+ then your cost structure should reflect that.

2) Fix chronic execution issues – Over the last 7 or 8 earnings reports, aside from basically barely breaking even in terms of earnings, pretty much the only consistent occurrence during the conference calls was that the company’s properties had a higher number of visitors and page views yet the company was not able to monetize it properly because 1) it did not have the sales team in place and/or 2) when it did have the team in place they did not know how to sell it effectively. Now management did not state things as clearly as I did above but it is clear from any digging one did that this is exactly what happened over and over again.

3) Leverage traffic by introducing new revenue opportunities – The finance vertical is one of the most valuable verticals on the internet. Visitors to finance related websites are among the most sought after on the internet by advertisers. Given DeMarse’s previous experience with lead generation companies there is new opportunities for leveraging The Street’s traffic for 1) new lead generation products (credit cards, mortgages, insurance etc) and 2) converting traffic better to existing products (The Street’s premium subscription products)

4) Do an accretive acquisition: The Street has nearly $140 million in tax loss carryfowards and about $75 million in cash that is basically idle. Ideally, it would be better to give back the cash to shareholders via a share buyback or dividends but because of restrictions on those two activities by the Preferred shares agreement, the next best thing to do is an accretive acquisition that makes use of those tax losses. When I asked the previous CEO on one conference call why not do an acquisition to make use of these tax assets his response was that this is considered financial engineering and it’s not something he favored. This left me baffled thinking that a) the previous CEO was clueless when it came to financial management or, most likely, b) because of number 2 above, the company has massive execution issues and can barely run the business as it is let alone add a new division or two.

At $1.75, TST is still an attractive stock with a 5%+ dividend yield. The downside is pretty limited at these levels and I am willing to give Elisabeth DeMarse the benefit of the doubt that she is capable of righting the ship at The Street during the next 18 months.

Disclosure: Long shares of (NASDAQ:TST)

Tagged NASDAQ:RATE, NASDAQ:TST