Local Online Advertising Driving Growth At The Knot (KNOT)

Feb.15.06 | About: XO Group (XOXO)

The Knot (KNOT), publisher of wedding planning web site TheKnot.com, dating site GreatBoyfriends.com, and home setup website TheNest.com, announced very strong 4Q05 results late last week: EPS of 6 cents/share on $12.8m in revenues -- analysts expected just 4 cents/share EPS. For the year 2005, KNOT revenues jumped 24%, and earnings grew about 300%.

The stock is up about 7% since reporting those results -- currently trading around $15. Note that 12 months ago KNOT traded at $5.

Online ad sales constituted 57% of the company's revenue for the quarter, and just over 50% of the year's revenues (other revenue streams: merchandise sales and print publications). In the conference call, The Knot CEO David Liu made a number of statements indicating that localized online advertising in The Knot's 69 local sites is a key factor behind the company's ongoing growth:

Our local advertising continues its steady growth largely due to the fact that we do deliver measurable results to give our advertisers immediate payback from their investment on The Knot. A basic local listing on The Knot site goes for about $1000; still a bargain compared to the cost of the plain Vanilla yellow pages of advertising and in listing.

The average spend by our local advertiser is approximately $1400 as many local advertisers take advantage of the extras we offer above the basic listing. These include a premier listing on a category page like photography or banner on the front first stage of their online city guides, say for example, Atlanta... An incremental cost can still be below that of the yellow pages or their local newspaper.

Last April, we’ve raised our local rates by 10%, and plan a similar increase this April. Given our strong local revenue growth through 2005, our rate increases have in no way affected our customers’ appetite for advertising with us...

We launched local advertising on The Nest in the fourth quarter and are now in ten of the 69 local Knot markets. Since advertisers seeking to reach newlyweds have far greater ad budget in many categories like automotive, financial services and real estate, related advertisers are already spending a growing proportion of their budgets online.

KNOT 1-yr chart: