The Knot Earnings Preview: Fourth Quarter 2008

The Knot [[KNOT]] is scheduled to report their fourth quarter 2008 results after the market closes on Thursday, February 12. Based on our analysis, we are expecting KNOT to report inline results that meet Wall Street’s expectations.


Analyst Expectations

We are forecasting revenues of $24.8 million and EPS of $.03. This would represent a 3% growth in revenues from last year’s $24.2 million in the same period. The current analyst consensus calls for revenues of $25.0 million and $.03 EPS. On November 6, the company updated its full year revenue guidance which implied fourth quarter revenues of $24.2 – 26.1 million.


The Knot continues to establish itself as the clear #1 online wedding portal. The company announced that last year they registered 1.9 million new member – representing 85% of all brides in the U.S. Our checks show that traffic growth continues to be strong across the companies expanding network of sites.


However, the bad news is that the company is operating in the face of strong economic headwinds. The Knot relies on display advertising for a majority of their revenues and it is clear that prices are dropping for this inventory. We would expect evidence of the declining levels of traffic monetization to become apparent in the fourth quarter results.


2009 guidance (assuming management will continue providing this) will be even more tempered. It is unlikely that the company will be able to raise rates at all this year like they have in years past. Heavy discounting may be required in 2009 in order to convince advertisers to keep spending.


Share Performance

The Knot’s shares are up 11% since the beginning of the year. In 2008, the shares took a severe beating – dropping 48% compared to the Dow Jones index’s 34% drop.



Shares are now trading at 33x consensus 2009 EPS estimates. This is above the relative valuations of their peer group. We would expect shares to drop further following the company’s quarterly results and announced 2009 guidance.


Recommendation: Sell with a $6 price target.


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