DB Lowers Estimates & Price Target on The Knot (KNOT)

Risk/Reward Balanced at Current Levels, Maintain HOLD

We maintain our HOLD rating on the Knot, as business execution still
remains challenged and ads continue to see growth rates decline,
despite asset value addressing a largely untapped online wedding
category. After poor results the past few quarters, 3Q results came
in better than expectations. However, premature to state that the
business is back on track at this point. Shares will likely be
rangebound with support of almost $4 in cash.

Lowers Guidance, Implementing Cost Containment Measures

Even with better 3Q results and 85% ad revenue contracted for in 4Q,
TheKnot lowered its full year growth outlook to 5%-7%, down from 9% -
11% previously. Operating costs are expected to be flat in 4Q from 3Q
levels, as cost saving measures are implemented in the business. As
for 3Q results, revenues/EBITDA/EPS came in at $27mn/$5.3mn/$0.08
better than our $26mn/$3.2,m/$0.04 estimate. The beat mainly came
from merchandise and publishing, while ads and registry was
flat/weaker than expected.

Slight Tweaks to Estimates

For 4Q 2008, we now expect revenues/pro-forma EPS of $25.3mn/$0.06 vs.
$25.9mn/$0.05 previously. For 2008, we are now at revenues/EPS of
$104.8mn/$0.26 vs. $104.3/$0.21 previously, mostly on the 3Q beat.
For 2009, we are modeling revenues/EPS of $106.4mn/$0.29 vs. $107.7mn/
$0.31 previously. Our business line assumptions for 2009 include
$61.7mn from Advertising (+10%Y/Y), $10.7mn from Registry (+1%Y/Y),
$18.7mn from Merchandise (-8%Y/Y) and $15.3mn from Publishing (-15%
Y/Y).

Lowering price target to $6 (from $9)

Our new 12-month price target of $6 ($9 previously) values the shares
at 21x our FY09E pro forma EPS of $0.29, in-line to the Internet
media sector (currently trading at an avg. of 21x FY09E EPS). While
we think the company is positioned well to capitalize on the online
wedding opportunity and implementing cost cutting initiatives, we
think execution challenges limit the upside to its Internet media
category multiple at this point. Risks include: online ad spending
slowdown/acceleration, acquisition integration, increased/decreased
competition and customer retention/loss.