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Stocks T / The Knot, Inc.


Subject:  Another approach Date:  5/24/2005  11:23 AM
Author:  mohockh Number:  86 of 127

Hello all,

I'm definitely interested in this company, but unfortunately I think it might be one of those cases where you just can't know whether they're worth betting on or not. I'd appreciate any input you guys had on my thoughts to get me over this hurdle!

Let me start by saying that I agree with the sentiment that KNOT will need to generate a lot more income per person than it does right now, something like 5x more I think. This is because they mentioned that in 2003 and 2004 they acquired 1.1M new customers. Assuming a customer lasts for roughly 1 year and there are only 2.4M people getting married each year, we can't very well expect them to expand the number of customers they get too substantially. TheNest will help them extend their avg. customer's lifespan (from say 1 year to 2 yrs?) but still won't give them access to more than 2.4M new people each year. I'm not sure how profitable the dating, prom, etc. things will be... so just sticking to the customer segment they know best, brides, I think one could make the case that they're going to likely be at like 3x-4x profitability / bride in the next few years. I don't think this alone can justify the $6.00 price tag, but I also think there is potentially much more to the story.

The reason that I've become interested in this company because I think it has fantastic potential to rewire how the industry operates. I am not married, but in whitnessing many friends the one thing I hear over and over again is how much money the vendors make compared to similar vendors in other market segments. Getting a photographer is expensive, getting a WEDDING PHOTOGRAPHER is really expensive! Same with the cake, flowers, facilities, etc., etc., etc..

I think KNOT's true potential lies in it's ability to be the toll-booth that "value conscious" brides use to purchase goods and services from vendors. There will always be room for the customized level of service associated with personal wedding planners, but if you're worried about cost the first reaction is "do-it-yourself." Thus, I believe KNOT can become the home depot of weddings: "You can do it, we can help."

The money they've spent to date on branding is an investment in trust. I would prefer to see them start focusing their investment on improving their recommendations to brides about how, what, when, and where to buy their wedding goods & services.

If they can become the toll-booth for which vendors to choose and what to buy - KNOT will be able to shift a lot of the profitability from vendors to themselves - because KNOT will OWN the brides' confidence, attention, and be the first place they go to ask questions.

Supposing any of this comes to pass, how could one verify the hypothesis? It should be reflected by an ever increasing revenue / bride and relatively constant cost / bride year after year. Accordingly, major vendors that use KNOT should start to see decreasing profit margins offset by increased volume.

The biggest risk, as I see it, is in KNOT spending time trying to extend their revenue base by trying to get too far into people's lives that has nothing to do with weddings. I would hate to see them offer for example a site called to increase their customer lifespan another year. It's not focusing on their core business, that's just being distracted.

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