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or aka "Leonard Nimoy goes In Search Of a KNOT Post" or something like that (at least while we still have a KNOT board here)..........too bad the "Today" series winding down (weds. sept. 6 - The Big Day). Next quarterlies will be interesting - can they keep reducing the losses now that Weddingpages has been factered in? Carley does keep site stuff fresh and works on PR like "Today", giving away copy of Jennifer Aniston gown, etc. - and still keeps marketing costs low (hint to J. Bezos - STOP spending so much cash over there in Seattle!). Even better question - is there a TMF that actually follows KNOT? "Fortune" gave KNOT a hopeful analysis. Still long, betting on survival if David and Carley stay on the financial straight path. Knowing Wall St. herd mentality, SOMEONE someday will reignite b2c's after the fallout - even gold has come back now and then. Why "KNOT" us if they can prove to be like Richard you-know-who on the island and remain standing after other 'nets have been voted off nasdaq? Time will tell, what the hell. There's my monthly quota of gibberish. Any other thoughts?

gp
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There's my monthly quota of gibberish. Any other thoughts?

OK, here's a few thoughts.

I haven't taken the plunge yet, but was intrigued by Fortune article. Very rough balance sheet analysis shows that KNOT has about 6-7 more quarters of cash at current burn rates.

I like the concept, I like the future demographic's (think Gen Y). Bottom line is KNOT is one of a thousand examples of companies that were rushed to public markets prematurely. Looking at P/S and given lack of profitability I think KNOT is fairly valued. If they can ramp sales and keep costs stable, the payoff for investors at these levels could be handsome.

Not to get too preachy, but there's a slew of B2C's out there doing less revenue annually than the Home Depot on the corner does in a week. There's a reason the bubble burst. I think KNOT has more potential than most B2C's, but I won't throw down $$$ until I see postive business momentum. I'd rather pay $7/shr on the way up, than $3.50/shr on the way down.

Joe O.
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I think KNOT has more potential than most B2C's, but I won't throw down $$$ until I see postive business momentum. I'd rather pay $7/shr on the way up, than $3.50/shr on the way down.

It's important not to confuse business momentum with stock momentum. My own heretical view is that the rulebreaker port is doing investors a disservice by arguing that they should avoid buying companies whose price is going down. Sometimes an entire sector is hammered, the good along with the bad. We are paying the price for drkoop's sins.

If they can ramp sales

We're almost doubling sales quarter to quarter. Our price to sales ratio is currently at 2, and will very likely be 1 around the end of the year if the price doesn't increase. We're in a niche business, but it's a large niche and we only have one serious on-line competitor. The Knot is a marketing machine, achieving substantial name recognition among its target audience without taking on serious debt. WeddingPages was a visionary purchase.

I think KNOT is fairly valued.

At less than $50 million? Sheesh. They'll have that in sales by the end of the year, and our market opportunity is in the billions. If the Fool closes this board I will buy some more, the last time the Fool closed a board on me (SciClone), I had a 10 bagger. Might take a year or two, but we should get there too.


Taylor
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<< "I haven't taken the plunge yet, but was intrigued by Fortune article. Very rough balance sheet analysis shows that KNOT has about 6-7 more quarters of cash at current burn rates." >>

- presuming the burn rates stay the same. The weddingpages purchase has now already been factored in. Just using the "Fortune" article, remember again that KNOT keeps the lid on marketing costs (rare in the b2c world).

Also please remember that KNOT no longer relies purely on ads, online or off - they sell gifts thru the site directly - 25% of sales 1Q.

It's quite justified to be conservative, but if one would << "rather pay $7/shr on the way up, than $3.50/shr on the way down" >> , I prefer to pay 50 cents on the dollar any day if the risk is worth it. Though it sounds we both may be Home Depot fans - I think HD is a steal right now. I can sleep at night owning both KNOT and HD. Good luck, all.

gp
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Taylor,

It's important not to confuse business momentum with stock momentum.

I wasn't confusing the two, just alluding to the fact that one (valuation) usually follows the other (top and bottom line growth).

Most retailers sport low P/S multiples, not unusually in the 1-2 range, and often below 1 (see Staples). KNOT has a great market niche and may well show explosive growth but until that happens I stand by my statement that they are fairly valued.

If they settle in at a multiple of 1, and ramp sales by 100% every quarter as you suggest, then the stock price should at least double every quarter to keep pace. At that point, and especially when profits follow, they will earn the right to an even higher multiple which should lead to an explosion of valuation.

I never implied that I don't think there is excellent opportunity here, because I do. I'm just conservative by nature and I want proof before I commit my hard earned $$$. And I'm willing to miss some of the move up in order to get that proof.

Joe
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Though it sounds we both may be Home Depot fans - I think HD is a steal right now. I can sleep at night owning both KNOT and HD.

Love the Depot, and Staples and American Eagle Outfitters as well (for Taylor: We just dropped a bundle at AEOS over at the Crabtree Valley Mall for back to school clothes - the place was crawling with teens!)

Joe
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Hey Joe,

A fellow Raleighian! (Raleighite?) Cool.

I never implied that I don't think there is excellent opportunity here, because I do. I'm just conservative by nature and I want proof before I commit my hard earned $$$.

Fair enough! Conservative investors should probably shy away from unprofitable companies in general, and unprofitable internet companies in particular, as I would characterize these investments (including The Knot) as "high risk." I must have misunderstood your post as I thought you were saying you wanted to see proof of high growth rates in sales, which it seems to me we have in spades. Whether we can turn this into profits remains to be seen, of course.

Most retailers sport low P/S multiples, not unusually in the 1-2 range, and often below 1 (see Staples).

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.

Is Amazon overvalued? Perhaps. On the other hand, there may be strong reasons why an e-tailer would have higher multiples than your average retailer. Certainly we Amazon investors think so!

Another consideration is that The Knot, in many ways, seems more similar to Yahoo than Amazon. 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?

Every investor has to reach a comfort level with his stocks, and so I hope I didn't sound critical of your cautiousness. I can see if you are coming from the retailing sector, how The Knot looks fairly valued. If you are coming from the internet sector, however, The Knot is definitely cheap relative to everybody else. And again, it's not a multiple that is warranted in my opinion given our growth rates and our market opportunity.


Taylor


p.s. Crabtree's a nice mall but the parking drives me crazy...
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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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hey Joe,

Nice post. According to the Fortune article, people who registered with the Knot last year spent an average of $20,000 for their wedding (not $10,000). In regard to your other estimate, there were 2.5 million weddings in the U.S. last year, so we could perhaps hit 25 million weddings twice as fast as you projected. Also, the Knot has already achieved a 33% penetration rate among wedding parties, so your 50% number might be too conservative. Finally, all these numbers are for the U.S. and don't include other markets (such as Brazil).

Here's a downside I see: the trick is not getting people to register with the website. That's free. The real trick is to turn those registrations into cash. I seriously doubt the Knot will ever get 100% of wedding expenditures for a particular wedding party. So while your working numbers are low in regard to the size of the wedding market (I'm pretty sure the Knot gives a market estimate in their 10-K, I believe it was $30+ billion a year), it is probably unrealistic to conclude that the Knot could ever get 50% of that market, even under best case scenarios. A lot of wedding expenses are unlikely to ever go on-line (renting the church, etc.) and whatever number eventually ends up on-line (10%? 20%?), the Knot will have to split that number with competitors. 50% of the on-line market sounds like a pretty good estimate to me (as we only have one serious competitor right now, and first mover advantage is critical in this market I think).

Another thing to think about in regard to advertising revenues--the Knot's market here is potentially much broader than the wedding market. A lot of newlyweds, and wedding-to-bes, are in the process of buying a house, and furnishing that house. A wedding party is a very desirable demographic for many different markets. A wedding is a seismic shift in people's lives, and with that shift a lot of money is spent--not on a "once in a lifetime" things, but rather "once in a decade" things. So things that would not get counted as part of the "wedding" market (refrigerators, sofas, even houses) could conceivably be sold on the Knot.

I'm not really projecting numbers, as I feel there are too many unknowns to quantify. I just feel confident that at least a portion of the $30 billion wedding market will be spent through websites, and it seems reasonable to assume a good percentage of that will be spent on the Knot. Assuming we don't run out of cash first (which, of course, is a risky assumption, but one I am prepared to accept), I think we will easily reach $1 billion in market cap, and I think it likely to happen sooner rather than later.


Taylor
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