The Knot Inc. by Beacon Equity

Analyst: Victor Sula, Ph.D. Initial Report March 10th, 2009

KNOT daily

3/09/09 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 volume

600 400 200

Feb

Mar

Thousands

800

MARKET DATA

Share Statistics (02/25/09)

NASDAQ

Symbol Current price Low/ High 52 weeks Average Volume Market Capitalization Shares Outstanding

2006

2007

2008

%Chg

KNOT

Revenues, $ Mn.

72.7

98.7

103.9

5.3%

$5.80

Gross margin

78.6%

81.7%

81.2%

-0.5 b.p.

$5.35-12.57

Operating margin

26.5%

16.1%

2.0%

-14.1 b.p.

169,592

Net margin

32.2%

12.1%

4.0%

-8.1 b.p.

EPS, $

0.82

0.36

0.13

-63.9%

$183.40 Mn 32.30 Mn

Source: Yahoo Finance, Analyst Estimates

Background The Knot Inc. (KNOT) is one of the leading lifestyle media companies providing multiplatform media services to the wedding and newlywed markets in the United States. Its flagship brand, The Knot, is the nation’s leading wedding resource, reaching more than 1 million engaged couples each year through the KNOT Web site - TheKnot.com. TheKnot.com is the No.1 online wedding destination for more than 3.2 million unique engaged users each month. It provides the largest searchable gown gallery on the Web with 20,000+ gown pictures from more than 500 designers; 13,000+ local florists, photographers, reception sites in 50 cities; and 1,000+ articles on all wedding-related topics, as well as answers to etiquette questions. The Company’s online services also include providing membership and community participation through chats, message boards, blogs and personalized interactive services; informative content with shopping services, which include attendant gifts, favors and supplies, as well as sells wedding supplies direct to consumers through its integrated shopping destinations; broadband video content; and newsletters and e-mail updates. The Local Resource areas KNOT’s Web sites provide acThe Knot Inc. (NASDAQ: KNOT)

Analyst: Victor Sula, Ph.D. Initial Report March 10th, 2009

cess to the local wedding market through online regional guides that host profiles for more than 14,000 local vendors. In recent years, KNOT has expanded online through new Web site launches. Currently, the Company operates Web sites under the brands of WeddingChannel.com, a wedding registry site; TheNest.com, a Web site for newlywed users; LilaGuide.com, a Web site for local baby resources; TheBump.com, a Web site focused on the pregnancy and first-time parenthood lifestage; PromSpot.com and PartySpot.com, party planning sites; and others. The brand’s trademark can be also found in bookstores; in newspapers through Scripps Howard and McClatchy-Tribune News Services; online at major portals like MSN and Comcast; and on TV through original programming on the Style Network and a weddings-only, video-on-demand channel on Comcast Cable. The Company’s offline services include publishing The Knot Weddings magazine, a searchable shopping guide providing directories of wedding gowns, fine jewelry, china, home products, invitations, wedding supplies, honeymoon packages and local wedding vendors. KNOT offers a library of up-to-date wedding books and lifestyle magazines, which include region-specific information on weddings. The Company also provides national and local advertisers with targeted access to couples who seek information relating to the aspects of their weddings. In addition, the Company offers national advertisers the opportunity to sponsor content on The Knot TV. Founded in 1996, KNOT is based in New York, with several other offices across the country.

Highlights Solid revenue growth and margins improvement The Company reported strong growth during last five years, with revenue surpassing $100 million in 2008. As more than 14,000 local businesses advertise on the Company’s Web sites, the main driver of revenue growth was the revenue from the national and local online advertising programs, and merchandise revenue from the sale of wedding supplies. Revenue ($Mn) and Gross Margin (%)

Source: SEC Filings; Reuters.com. Year-ending December, 31.

The Knot Inc. (NASDAQ: KNOT)

Analyst: Victor Sula, Ph.D. Initial Report March 10th, 2009

Gross margins approximated 81% for each month ended December 31, 2008, and 2007. In order to maintain its margins at this decent level in current economic environment, KNOT is taking prudent steps to identify areas in which it can make further reductions in spending. Income statement, $Mn FY 2007

FY 2008

%Chg

Net revenues Online sponsorship and advertising Registry Services Merchandise Publishing and other

98.7 49.0 10.9 19.3 19.5

103.9 54.4 10.4 20.5 18.6

5.3% 11.0% -4.6% 6.2% -4.6%

Gross profit

80.6

84.4

4.7%

Total operating expenses Product and content development Sales and marketing General and administrative

64.8 13.8 25.3 16.7

82.3 20.8 30.1 18.6

27.0% 50.7% 19.0% 11.4%

Net income Diluted earnings per share

11.9 0.36

4.1 0.13

-65.5% -63.9%

Source: SEC Filings; year-ending December, 31.

Focused acquisition strategy to leverage the Company’s core assets and to increase its market share During the past years, KNOT has operated a keenly-focused acquisition strategy, which is, in part, responsible for more than eight consecutive years of growth. Some of its later significant acquisitions include the addition in 2006 of WeddingChannel.com, a former competitor and now sister wedding site focusing on the registry component. Its proprietary registry aggregation service offers approximately 2.2 million registries from many retail partners, including Macy’s, Bloomingdale’s, Tiffany & Co., Crate & Barrel, Neiman Marcus, Williams-Sonoma, Pottery Barn, JCPenney, Starwood Hotels, Sandals Resorts and others. More recently, in February 2008, the Company acquired The Bump Media Inc., publisher of The Bump local magazines and Web site dedicated to pregnancy, maternity, baby resources and first-time parents. In addition to TheBump.com, in January 2009, the Company acquired the Breastfeeding.com, the No. 1 Web site dedicated to providing advice on breastfeeding. In the same month, KNOT announced the addition of WedSnap, developer of Weddingbook, the most popular wedding application and the fastest-growing social network of brides on Facebook Platform which offers an engaging interactive platform that allows couples to update wedding details and bridal registries. Growing annual membership base solidifies the Company’s position in the online wedding category 2009

The Company’s flagship brand, TheKnot.com, closed the year-end 2008 by celebrating its highest number of new registered members during the year than in any year in the KNOT’s history. In June alone, TheKnot.com closed the month with a record-breaking 116,000. This is the highest number of new members for June on record, 13% above the site’s past record of 103,000 in June of 2006. Overall, in 2008 there was a 12% membership growth over 2007. The Knot Inc. (NASDAQ: KNOT)

Analyst: Victor Sula, Ph.D. Initial Report March 10th, 2009

The combined annual membership base of 1.9 million new registered members across their wedding brands represents the vast majority of the 2.2 million couples getting married in the United States. The Company captures the names, e-mail addresses and wedding dates of its members. Strategic initiatives to extend KNOT’s brands and enhance its technological infrastructure In 2007, the Company commenced a renovation of its legacy technology platforms, including the content management system (CMS), the contract entry systems and the ad server. The new content management system allows KNOT to more efficiently maintain and organize information on its Web sites. CMS allows the editors to easily create and update content on a daily basis without relying on developers, thus creating more of an “of-themoment” feel for the brides. TheKnot.com, WeddingChannel.com and TheNest.com have been converted to the new platform with pretty significant changes all around both in design and usability. The Company’s new local contract entry system and surrounding support applications, which is under development, will allow greater pricing flexibility, as well as achieve operational efficiencies. KNOT also intends to proceed with further projects involving a self-service platform that will allow local vendors to automatically select their advertising programs and an auction-based platform for selling featured vendor positions in the local areas on the Company’s Web sites. Solid balance sheet without debt The Company has $69.0 million in cash and equivalents and $13 million in short-term investments and no debt. KNOT has an additional $52 million in auction-rate securities, which are currently classified as long-term investments. About $7.1 million of cash is in operating accounts, $10 million in U.S. treasury bills, $10 million in money market accounts which are generally invested in U.S. treasury securities, and $44.4 million invested in high-quality commercial paper of some of the largest companies. KNOT intends to use its solid balance sheet to take advantage of strategic opportunities as they appear. Selected consolidated balance sheet data, $ Mn 31-Dec-07 Total Assets, including Cash and cash equivalents Short Term Investments Liabilities, including Debt Equity

223.3 33.1 37.0 0.06 186.3

30-Jun-08 227.2 62.4 37.4 0.06 189.9

31-Dec-08 229.4 61.5 13.0 31.0 198.4

Source: SEC Filings; year-ending December, 31.

Challenging economic environment to affect consumers’ behavior related to wedding spending Each year, approximately 2.2 million couples get married in the United States. Considered to be a once-in-alifetime occasion, a wedding is a major milestone event, and consumers tend to allocate significant budgets to the wedding and related purchases. The average amount spent on a wedding in the United States in 2007 was approximately $27,490. According to an independent research report, the domestic wedding market generates more than $70 billion in retail sales annually, including gifts purchased from couples’ registries.

The Knot Inc. (NASDAQ: KNOT)

Analyst: Victor Sula, Ph.D. Initial Report March 10th, 2009

Due to severe economic conditions, the average amount couples are spending on a wedding is expected to drop in tandem with the economy, decreasing at least 10% in 2009, according to a wedding research report. In 2008 the average price for a wedding is expected to be fallen at $21,800. However, despite the recent economic downturn, brides and grooms continue to plan for wedding, gifting and home-related purchases in 2009.

Investment sentiment KNOT has quickly become America’s leading wedding brand, reaching out to millions of engaged couples each year through its award-winning Web site, books, magazines and broadcast offerings. The Company’s Web sites are among the most-trafficked one-stop wedding planning solutions. According to the Company, TheKnot.com, the No.1 wedding Web site, and WeddingChannel.com, the No. 1 wedding gift registry Web site, already reaches 80% of all to-be-weds on the Internet. KNOT mainly attributes membership success to its investment in new platforms and system upgrades, along with a strong increase in rich and interactive features, like enhanced video and new planning tools. The Company has set a focused acquisition strategy which allows it to expand its service offerings in many areas. The Company also benefits from acquired companies’ already established relationship with trusted partners, which lend credibility to the brand. Recently, KNOT expanded its brands into the newlywed and first pregnancy lifestages, as part of its efforts to grow into a wider lifestyle media company. The Company’s new content management system provides greater value to local vendors, while also driving more organic search traffic to KNOT. In addition to the new content management system, the Company is developing a new contract entry system which will allow it to more effectively scale its local business and drive further growth for local online revenue. Though 2008 was a challenging year for the Company and the entire marketplace, KNOT finished the year with a 5% increase in revenue. The main drivers were national and local online advertising businesses, which were 15% and 8.5%, up over 2007. In 2008 KNOT’s registry business saw declines as its retail partners experienced declines due to lower consumer spending. The Company’s management expects that 2009 could be even more challenging than 2008. To face the situation, KNOT plans to leverage its diverse businesses to quickly adapt to the changing economic environment. The Company stays to be focused on execution and sales and technology, opportunistic acquisitions and careful management of expenses. Despite growing online competition, KNOT succeeds to capture the dominant share of today’s brides who turn to the Internet for wedding tools, products and services and has all premises to weather the economic headwinds of 2009.

The Knot Inc. (NASDAQ: KNOT)

Analyst: Victor Sula, Ph.D. Initial Report March 10th, 2009

Comparative analysis Company Name 25.02.09 Martha Stewart Living Omnimedia Inc. Alloy Inc. Blue Nile Inc. Walt Disney Co.

Price Ticker per symbol Share, $ MSO ALOY NILE DIS

2.41 4.38 22.32 17.59

Mrkt. Cap. $ Mn

2008

2009

2008

2009

2008

137.4 59.8 321.4 33,265

40.17 n/m 34.34 10.05

14.18 n/m 27.22 8.88

0.47 n/m 1.21 0.92

0.46 n/m 1.12 0.89

0.06 n/a 0.65 1.75

34.34

14.18

0.92

0.89

39.50

27.48

2.06

1.96

Median Knot Inc.

KNOT

6.32

213

P/S

P/E

EPS, $ 2009

%chg

0.17 n/a 0.82 1.98

183% n/m 26% 13% 26%

0.16

0.23

44%

Source: Reuters.com.

We rate the Company as a “Speculative Buy.”

The Knot Inc. (NASDAQ: KNOT)

Analyst: Victor Sula, Ph.D. Initial Report March 10th, 2009

Disclaimer DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS REPORT. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority. We are neither licensed nor qualified to provide investment advice. The information contained in our report should be viewed as commercial advertisement and is not intended to be investment advice. The report is not provided to any particular individual with a view toward their individual circumstances. The information contained in our report is not an offer to buy or sell securities. We distribute opinions, comments and information free of charge exclusively to individuals who wish to receive them. Our newsletter and website have been prepared for informational purposes only and are not intended to be used as a complete source of information on any particular company. 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These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements. We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable. To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information). We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www. finra.org. All decisions are made solely by the analyst and independent of outside parties or influence. I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report. Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

The Knot Inc. (NASDAQ: KNOT)