18 November 2005

Why Men Should Be Involved in Wedding Planning

While digging up research on Jones Soda, I noticed TheKnot.com (KNOT) pop up along with it, as a small stock to watch. I vaguely recall the site from the days and months before my wedding.

Apparently, I should have paid more attention to TheKnot(and to wedding planning, as well). Investors have paid attention, and paid increasingly more for shares over the course of 2005.

Rick Aristotle Munarriz at fool.com called attention to KNOT twice this year, on March 10 and June 22. Here are the knotworthy excerpts from each date:

TheKnot.com (OTC BB: KNOT): $6.10. While it's easy to spot the flaw in the wedding resource site's plan -- it's an attractive draw for brides-to-be and nervous grooms-in-waiting for just a sliver of time -- what a great time to have someone's attention. With an audience that's young and ready to spend a ton of money, it's easy to see why online advertising rose by 41% for TheKnot.com last year. It turned a modest profit of $0.06 per share, and I like what I see in the company's recent moves to grow its audience beyond the current 1 million active members.

TheNest.com is the company's new site for newlyweds. It's an underserved and lucrative niche. The company also acquired a pair of dating sites a few months ago. Put together, you have a dynamic company that is now reaching out earlier in the courtship cycle, while also extending its grasp to the other side of "I do."

The Knot (Nasdaq: KNOT): $6.70
If you've ever walked down the aisle in the name of matrimony, you've probably had plenty of practice by the time you formally say, "I do." It's often a question the bride and groom ask themselves in the planning process. You need bridesmaids' dresses? "I do?" You'll need a DJ lined up for your reception? "I do?" That's where The Knot comes in. For those tying the titular knot, TheKnot.com is a resource for all those wedding details. The Knot has a killer brand that has been featured in various television outlets -- including a key role in the second season of "The Apprentice," when The Knot saved the day for one team.

It seems that the young and underprepared have been relying on The Knot -- the company's online advertising revenue rose by 41% last year. It's profitable, too.

However, what I most like about the company is how it has just started to capitalize on its strong position in drawing prospective newlyweds and broadening its wingspan. The company recently launched TheNest.com, designed to be a site for the newlyweds it helped get hitched in the first place. It also acquired a pair of dating sites, giving the company an even earlier hand in the courting process.

Since these pieces ran, TheKnot.com announced in September that it was teaming up with Zale Corporation, owner of Zales Jewelers, Gordon's Jewelers and Bailey Banks & Biddle. Together, they will cross-promote and cross-market each others brands.

I hope you ignored the outdated price quotes in the fool.com excerpts; KNOT currently trades for around $11.40 as I write this. So are we too late to the (wedding) party?

I think so. Let's look at some more numbers to make sure.

Free cash flow figures from Morningstar.com show much improvement. Between 1999 and 2002, KNOT had negative FCF, but I'm not surprised to see that in an internet start-up. In '03, KNOT had $3.1 in positive free cash flow. It dropped to zero in '04, but the trailing twelve months have seen a rebound to $3.0M. These are positive, but small numbers.

SmartMoney.com has some larger numbers that we need to consider. PEG is 1.31, so KNOT is no longer the bargain of six months ago. The P/E, a metric I don't bandy about much, is a lofty 102, based on a market cap of $255M. This should be unsurprising in a speculative growth stock.

Roughly half of all marriages end in divorce--we should wait and see if investors split up with their KNOT holdings, and then take another look.

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