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 TheNowYouHaveYourHouseAndWantToFixItUp.com to increase their customer lifespan another year. It's not focusing on their core business, that's just being distracted.Chris
As an avid Knot member during the planning of my 2003 wedding, I think I can offer a little information to address some of this.The average lifespan of a Knot member is probably around 1-1.5 years, depending on the length of the engagement and how involved one becomes in planning the wedding. Amongst those members who frequent the message boards, a lot of members stay on 3-6 months after the wedding, to share advice, and to just continue being around the wedding-planning scene. In fact, a figure I'd really like to see to better estimate the lifespan of a site member is the percentage of members who have set up screen names to access the message board. I had a membership to the Knot for months and rarely visited (aside from the Gown Search feauture) before I realized that its message boards hold the biggest wealth of information. Sometimes the rest of the site seems a little watered down without a lot of pictures (what most brides are after for inspiration), but the message boards are active 24 hours a day with fellow brides ready to share ideas, opinions, and knowledge. Those are the most likely candidates to move on to form a lasting membership on the Nest. I see the Nest's biggest draw as providing a forum to continue those relationships forged on the Knot and to serve as an open all-women (or mostly women) discussion community.Obviously the biggest way the Knot will continue making money is through advertising. While it's a nice idea to think that they'll become the trusted source for wedding vendors, that probably won't happen any time soon. Part of the site's policy gives them permission to remove any posts they wish from the message boards, and there are dozens of documented and widely known cases where this has happened. A bride posts a message detailing how a vendor performed badly either during planning of worse, at the wedding. Often these posts are well-formed warnings with all the dealings between the bride and vendor clearly spelled out and are posted as a warning to other brides who may be considering that particular vendor. Unfortunately, some vendors check the local boards for posts concerning them, and if they are a paying advertiser on the Knot, they can request that the administrators remove the negative post entirely. By the time the post is removed, it may have spawned a 20-post discussion, which is not easily forgotten by the brides involved. Word-of-mouth spreads these stories quickly, and most brides learn quickly that the Knot is not always to be trusted. It would be very difficulty for the company to change its image.As for TheNowYouHaveYourHouseAndWantToFixItUp.com, I'm sure home improvement is one of the areas that's being developed at the Nest. I've spent very little time looking through the Nest content, but I know there's a message board dedicated to home improvement, purchasing, and decorating. They're catering to a community of obsessive planners, and for people like that (myself included), there will always be some kind of project in the works!One of the issues that has concerned me most is the technical stability of the site itself. Rather than the content, I would guess that the bulk of their members spend most of their time with the message boards and the online planning tools. However, there have been some significant technical oversights in these areas in the past. I believe the site performance is improving, but there are still far too many times when it is inaccessible due to problems/maintenance. For what is now primarily an online company, I feel that's a significant problem.As for the Knot's good points, it's certainly the easiest way for wedding vendors to access a huge potential customer base, and it's widely herolded as the online destination for wedding planning. It may be a specific market, but they certainly have it cornered!The Knot has made some nice improvements over the past few years, so I plan to hold it for a while and see what happens.
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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