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No. of Recommendations: 1
I think this is evolving into a very useful exercise, and is one of the great things about TMF boards. I hope others will join into this analysis. Here goes.

Taylor said:
Are we a retailer, however, or an e-tailer, and is there a difference? I consider The Knot to have a business model that is more akin to Amazon, say, then Abercrombie or Home Depot. Amazon has a p/s ratio over 6...

...I would say The Knot is, first and foremost, an information portal for people who are planning a wedding. I think advertising revenues will always be a part of The Knot's business model (which is unlike the retailing industry, or Amazon for that matter). What this means is that the Knot will in the future have profit margins much higher than your typical retailer. So again, is the retailing industry the proper comparison?


1. I agree that KNOT's model is more of a hybrid retailer, with a "lighter" business (i.e. they don't have the ponderous inventory of bricks and mortar retailers), which implies higher margins.

2. Big, blow-out weddings are for the most part a once in a lifetime event (except for Larry King and Liz Taylor). I realize people get divorced and remarried, but subsequent weddings tend to be much more modest in scope.

3. If you accept the above premises, then KNOT has two ways to grow revenue. Growth through demographics (more people getting married for the first time) and increases sales per customer.

4. The demographic component of this is very much in KNOT's favor as Gen Y (currently age ~20 and under) represent almost as many people as the boomer generation AND they have grown up with technology at their finger tips so would be more likely to plan a wedding online. That implies an opportunity for greater penetration (market share) within the demographic. However, I would be surprised if KNOT remained in a largely competitive free environment, so I would closely monitor these figures every quarter.

5. Increased sales per customer is almost purely a component of good management. I like what I see on this front, but it's still early in the game to assess management by the time-honered metrics (i.e. sales, earnings, margins, AR/AP etc.)

All in all, I think KNOT has a lot of potential.
Here are some figures I threw together, assuming a "best case" scenario. (also note that these are domestic figures as I don't have a clue if there is an international market for this kind of service, but would love to hear from others...)
Total Gen Y: ~58m
Assuming 50m actually get married, that's 25m weddings over a span of ~20 years.
Assuming KNOT has 50% penetration, that's 12.5 m weddings.
I have no feel for how much the average wedding costs so assuming $10000 (in today's dollars) that would project a 20 year revenue run rate of $125B, or $6.5B/year. (if someone has better info in this area feel free to interject). Also I excluded advertising revenue because it is such a future "unknown" and as wedding revenue grows, it would probably represent a nominal pct of the total anyway.

Conclusion:
At a conservative P/S of 1, the implication is a potential valuation of $6.5B for a company currently valued at $45M. That's a 144 bagger! But everything has to go right under this scenario and that of course is the big question mark.

Going through this exercise shows why analysts are so much better at mature, large cap analysis. Many less unknown's.

Again, this is all opinion and conjecture, and I hope others will contibute their $.02 worth.

Joe
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