Where have you been all my life, beautiful?
Wedding-planning website The Knot (Nasdaq: KNOT) did something special Thursday night. It soared past Wall Street's profit targets for the third quarter.
It's been awhile. The Knot missed analyst guesstimates in four of the five previous quarters.
The actual results may not seem like much. Revenue climbed 8% to $27 million. Net income actually dropped 24% to $2.2 million, or $0.07 a share. However, investors were looking for just $0.03 a share in profitability. So, quicker than you can say "I do," The Knot is a relative winner again.
The highlight of the company's quarter was a 23% spike in national online advertising. Those gains were sandbagged by weaker growth at the local marketing level and an actual decline in its WeddingChannel.com bridal registry business.
Unfortunately, investors are unlikely to get an encore performance during the current quarter. The Knot is now projecting to grow revenue by 5% to 7% for all of 2008. Revenue grew at a 6% clip through the first half of the year before accelerating to 8% in the third quarter. That momentum is likely to reverse.
Thankfully, The Knot is dirt cheap right now. The company has $3.60 a share in cash and auction-rate securities. That's a healthy cushion, as long as the company remains profitable.
In the meantime, the company is tactfully expanding into related lifestyle areas like The Bump for pregnant women and The Next for newlyweds.
Naturally, it won't own these lifestyle niches the way it does the wedding-planning one. Catering to users beyond the "I do" pits it against companies like The Parent Company (Nasdaq: KIDS), Martha Stewart Living Omnimedia (NYSE: MSO), Disney's (NYSE: DIS) Family.com, and Alloy (Nasdaq: ALOY).
The company's bread-and-butter business will always be generating wedding-planning leads, a troublesome area to specialize in given the current trend for couples to scale back on that special day. Even engagement-ring retailer Blue Nile (Nasdaq: NILE) posted a surprising drop in net sales for its latest quarter.
The upside here is that The Knot is trading for a little more than $3 a share once you back out its cash, cash equivalents, and auction-rate securities. With its dominant position in a niche that will bounce back big time when the economy recovers, the stock is a steal for patient investors at this point.
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