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The Knot
is scheduled to report third quarter 2008 results after the
market closes on Thursday, November 6. Based on our analysis, we
at
eChristianInvesting are expecting KNOT to report
disappointing results that fail to meet Wall Street’s consensus
expectations.
Analyst
Expectations
We are
forecasting revenues of $28.0 million and EPS of $.01. This
would represent an 8% increase in revenues from last year’s
$25.0 million in the same period. The current analyst consensus
calls for revenues of $27.2 million and $.03 EPS. On August 7,
the company reduced their full year guidance to revenue growth
of 9 – 11%.
While The
Knot has established itself as the #1 online wedding portal, it
continues to face tough economic headwinds. With over 70% of
their revenue coming from advertising, the company faces
difficult times ahead as advertising budgets continue to shrink.
In the past, the company has been able to grow revenues by
simply increasing its rates. However, the current economic
conditions have prevented them from raising rates this year and
we expect that next year will bring more of the same. In fact,
while we don’t expect the company to reduce their rate card, we
anticipate the company will need to offer some form of
discounting in 2009.
Share
Performance
To date,
The Knot’s shares have fallen 57%. By comparison, the Dow Jones
industrial average has fallen 30% this year, and the Standard &
Poor's 500-stock index is down 34%.
Valuation
Shares are
now trading at 29x consensus 2009 EPS estimates. This is a
premium valuation to their peer group and we expect analysts to
cut their estimates yet again following the quarterly earnings
report. We see no reason to own these shares until the economic
climate starts to improve.
Recommendation:
Sell with a $5 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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Disclosure Policy |
