The Knot Makes Progress And Posts Solid 3Q

Deutsche Bank maintains its Hold rating on shares of The Knot (NASDAQ: KNOT), as the company is making progress on multiple fronts yet there is limited current visibility into the business, the Macys transition has a couple of quarters to go, and monetization in China remains distant. The key for The Knot will be whether it can get past these major near-term headwinds and return to capturing the longer-term wedding online opportunity with profitable growth. For now there are too many uncertainties for us to get more constructive, so DB waits for more convincing signs of execution.

While TheKnot enjoyed a solid 3Q, we believe that improved rev visibility and execution and easier comparisons on rev transitions should help the story along. This may take some time into 2011 to play out in our opinion. National ads will likely have a standout 4Q, but there is limited visibility into 2011, and one-half of this year's 16% growth is coming from Macy's, which will be comping flat to slightly down next year.

The sales velocity of Local and reduction of churn in October is a promising sign that the initiatives are
working, but it remains to be seen if this progress will persist past 4Q. Deutsche Bank remains concerned that creeping costs may offset much of 2010's top line
improvement. While China sounds interesting, we would prefer not to see management invest 20% of 2011 EBITDA when monetization is years away.

Deutsche Bank has a Hold rating and $9 PT on KNOT

KNOT closed Thursday at $9.50