Notable IPO of the day, CS First Boston's KNOT
Expected: Dec. 2
The Knot (Nasdaq:KNOT)
Shares: 3,500,000 Amount: $28,000,000 Price $10
Lead Underwriter: Credit Suisse First Boston
--> Summary
The Knot is the leading online wedding site, offering articles, online
chats, gift registries, and links to wedding vendors in 52 markets. It
receives most of its revenue from advertising and sponsorships (74% for
the six months ending June 30, 1999) and the rest from e-commerce
product sales.
Perhaps The Knot's strongest point is its integrated strategy: it
provides retail sales directly to consumers; it collects in-depth
demographic information for a key advertising target (soon-to-be
married couples); it links consumers to local brick-and-mortar
businesses (limousine services, florists, etc.) with real live sales
forces; it creates an online community with chats, message boards, and
personalized web pages for brides and grooms; and it provides wedding
planning content (checklists, budget guides, articles, etc.) that keep
its users coming back.
The Knot is not after small potatoes: an independent study found
wedding industry retail sales to be worth about $45 billion per year,
as compared to the toy industry at $27 billion. One important sign
that The Knot has strong prospects is that one of its big investors is
America Online (NYSE:AOL) with an 11% stake. AOL exclusively markets
The Knot on its own site and several of its other web properties.
Another advantage for The Knot is its principal investor: QVC
(Nasdaq:CMCSK), the home shopping company, holds approximately 47% of
the company. QVC has extensive experience in direct retail sales and
marketing, as well as contacts with suppliers all over the world. And,
like AOL, QVC can use its media properties to market The Knot.
The Knot lost approximately $1.5 million in FY 98 on revenues of
approximately $1 million. It has approximately 100 employees and is
based in New York City.
--> Investment Analysis
There are several factors leading to our position that The Knot will be
a strong performer, including:
1. Follow the Leader. What seemed to be a trend when it comes to
Internet stocks is now an unwritten rule on Wall Street - the market
leader in any web sector performs strongly. The markets know that the
wedding industry is big and The Knot is the leader. Simply following
the leader when it comes to net stocks has reaped big rewards for many
investors in the past, and we don't expect it to be any different in
this case.
2. AOL's Seal of Approval. Although AOL holds only an 11% stake in
The Knot versus the 47% stake held by QVC, AOL's marketing power on the
web is not to be underestimated. With approximately half of all
Americans accessing the Internet through AOL and AOL exclusively
marketing The Knot, it will be hard for any other online wedding
company to knock The Knot from first place.
3. Weddings Are Big Business. As we've already pointed out, weddings
are big business in America, yielding retail sales of $45 billion.
Investors are constantly looking for companies that can take profitable
brick-and-mortar businesses and move them online, thereby capturing a
big piece of the pie from more traditional companies. The Knot seems
poised to do just that - by providing one-stop-shopping for brides,
grooms, and guests and by positioning itself as the online link between
consumers and local brick-and-mortar wedding businesses, The Knot could
take a big piece of the massive wedding industry.
4. Advertising Revenue Strategy. Investors are becoming increasingly
skeptical of e-commerce companies that grow their sales revenues on
tiny margins: when will they be in a position to turn strong profits?
The Knot does have an e-commerce strategy, but its principle revenue
source is advertising and promotions, making it less vulnerable to
competitors who try to sell their products at cut-rate margins. This
means that The Knot can compete on price when it comes to e-commerce
sales, such as its gift registry, while growing its revenues through ad
sales. This should help allow it to maintain its position on top as
the number one wedding site. |
