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Cramer Criticism Too Rich to Ignore
by Jamie Dlugosch
The tables have turned on the bombastic stock market commentator, Jim Cramer.
Founder of the financial media company, TheStreet (NASDAQ: TST), Cramer is most well-known for his work on CNBC as the host of the popular Mad Money program.
And that is the problem.
Activist investor J. Carlo Cannell lambasted Cramer in a letter to TheStreet designed to put pressure on the company to do something about its lagging share price.
TheStreet had been wildly successful when it came public in 1999, reaching a peak valuation of $1.7 billion. Today the company is worth only $80 million.
Granted, most of that $1.7 billion was a function of trading publicly in the middle of the dot-com bubble in 1999, but still, the fall from grace is a bit troubling.
Other financial publishing companies including the Motley Fool and Stansbury & Associates faced similar declines in valuation and have since recovered.
The same is not true for TheStreet.
How can that be, given the omnipresence of Jim Cramer, who has to be one of the most well-known financial commentators and pundits in the business?
Cannell thinks it's inexcusable. He is demanding that the company be sold. He is also making specific requests of Mr. Cramer, as he should.
Cramer has done very well for himself with his gig on CNBC, but those benefits have not accrued to TheStreet.
In fact, most of the industry participants appearing on any financial news program do so for the sake of their underlying businesses.
It is all about promotion, and yet Cramer's contract with CNBC is quite restrictive with respect to him pitching the wonders of the business he founded.
In the mind of Cannell and others, such a state is not acceptable.
Cannell calls for Cramer to slash his compensation from TheStreet by 70%. In addition, he wants Cramer to resign from his CNBC commitment and get to the business of rebuilding TheStreet.
The scathing letter from Cannell might be difficult for Cramer and management at TheStreet to read, but it is dead-on with its summation and recommendations.
At one point I am sure Cramer believed that his presence on CNBC would be a huge benefit and advantage for TheStreet.
Unfortunately for TheStreet shareholders, that has not been the case. In fact, it might even be a detriment to have Cramer so visible on CNBC.
Instead of using his bully pulpit to pontificate about daily if not hourly swings in stocks or markets, Cramer needs to be focused on providing actionable advice to his paying subscribers.
Ultimately, the success of TheStreet will depend on the quality of that advice, and that means Cramer needs to be more right than wrong.
As it stands now, Cramer is simply noise. He is just as likely to be wrong about his opinions as he is right. How does the company realistically hope to sell such advice?
In the old days of financial publishing, it might have been enough to simply have an opinion. That is not the case today.
Thus, what Cannell is proposing makes a ton of sense. To the extent Cramer follows Cannell's suggestions, it might be a big boost to TheStreet's value.
The problem will be Cramer's ego. If he can't step down from his perch, TheStreet is likely to continue to suffer.
Jamie Dlugosch Editor Investor Research Institute
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