Deutsche Bank Maintains Hold on The Knot After Earnings

The company believes that while The Knot is well positioned to capitalized on the wedding opportunity, execution challenges will limit upside opportunities.


From Analyst Jeetil Patel:
* Risk/Reward Balanced at Current Levels, Maintain HOLD

We maintain our HOLD rating on The Knot shares, as business
execution still remains tough, especially in the current economic
environment. While the merchandise and print business units
outperformed in 4Q, the advertising and registry units missed the
mark, affected by the recession. We think local online ads are
starting to show promise (+9% in 4Q), yet visibility remains low in
the near-term at TheKnot. We think shares will likely remain range-
bound, yet supported by $4/sh in cash.

* Limited Visibility in 2009, but Focus on Cost Containment

The Knot posted 4Q results below expectations, as
revenues/EBITDA/EPS came in at $24.4mn/$3.7mn/-$0.03 vs. our $25.3mn/
$4.3,m/$0.06 estimate. Excluding a $4mn impairment charge, EPS came
in at +$0.04. The company had its highest net vendors ads in the
local ad business, but weakness in national ads and registry
masked the outperformance. Management plans to test new local ad
pricing models in 1Q, yet the broader theme on the call appeared to
be cost containment in light of the economic uncertainty.

* Modestly lowering estimates

For 1Q09, we now expect revenues/pro-forma EPS of $22.9mn/$0.00 vs.
$23.7mn/$0.03 previously. For 2009, we are now at revenues/EPS of
$104.5mn/$0.19 vs. $106.4/$0.29 previously. EBITDA is expected to be
$16.8mn vs. $20.4mn previously for 2009. Our segment assumptions
include $60.5mn in Advertising (+11%Y/Y), $10.5mn in Registry (+1%
Y/Y), $18.7mn in Merchandise (-10%Y/Y) and $15mn from Publishing (-
19%Y/Y). Overall EBITDA margins will drop from 17% to 16% in 2009 on
1% revenue growth (with declines in 1H and growth in 2H).

* Maintain $6 Price Target

Our $6 price target value shares at 20x our FY09E ex-cash pro-forma
EPS of $0.10, in-line with the Internet media sector (currently
trading at an avg. of 20x FY09E EPS) plus $4 in cash per share.
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. (See
Page 2 & 3)