kaisatsu -Thanks for that insight, that was quite helpful!I suppose what you're saying is pretty tough to argue with. It's hard to bite the hand that feeds you, and as you pointed out advertisers are definitely the source of most of the knot's revenue in the future. Perhaps in 5-10 years after they've beaten back a competitor or two and really cornered the market they can pursue that strategy with less risk. Well, I can dream right!? :)I've actually started working this from the other angle now, and I'd love some double checking... but I think they're actually quite cheap right now even if they don't do anything differently. The entire argument below involves viewing their annual economic profit as an annuity, which obviously has the weakness that they need to be in business forever! However, it may not be that ridiculous for them given that they have a relatively small niche (invites few competitors), very loyal customers (raises barriers to entry), and have a highly established brand already (lowers their costs -- another barrier to entry).Additionally, I think that a 5x increase in revenue is probably a conservative market size for them given that the nest could increase their active membership lifespans by more like 2-3 years. Therefore, I think it's safe to say that they won't be able to grow their economic profits to more than $$60M-70M / year w/o introducing some new products or services (which is what they'd have if they grew their existing revenue streams out by 5x because their costs don't scale nearly as much).They made 5.8M in economic profit for 2004 after backing out their legal bills and charging them their capital costs. If one assumes they don't generate any more economic profit than this, ever, but can actually keep the market niche they've clearly cornered... a $5.8M annuity is worth $145M (discounting at 4%). Right now the enterprise value of the company is $137M, apparently it's on sale by 5%.Now, if you assume any kind of revenue growth... you have yourself quite a bargain! Their costs / employee are getting much more stable (especially for their sales & marketing people), on the other hand they've had no problem growing the top line quickly for advertising. I think in 2005 they'll end up with something like $15M in economic profit, and $10M / year adds another $250M to their present value, putting them at closer to 40% on sale.Even using this cap on revenues of $60-$70M / year... the Knot sure seems like a solid bet... it actually seems like a terrific buy right now!Chris
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