XO Group Inc (NYSE:XOXO) is a media company focused on wedding-related content. It runs several websites, such as TheKnot.com (started in 1996), a wedding-related website targeting newly engaged women, and it also publishes magazines complementary to its websites.
Not a matter of death and taxes, but marriage comes close
Death and taxes are the only two things that are certain in life. For most people, marriage comes close as something of utmost importance in one’s life. Although more people in the U.S. are getting married later or choosing to stay single, a trend observed in many developed nations, about 2 million couples get married every year in the country.
For a significant portion of the U.S. population, marriage is a significant milestone in life, which can be deferred, but which eventually needs to be achieved at one point in life. Non-discretionary products and services tends to lead to more stable revenue streams – XO Group Inc (NYSE:XOXO) has a remarkable track record of growing its revenue in every single year for the past decade.
When you fail to plan, you plan to fail
A 2011 wedding survey of close to 18,000 U.S. couples confirmed that couples are increasingly investing more of their time and effort on their big day, with two key findings positive for XO Group’s wedding-focused media business.
Firstly, the average U.S. couple spent $27,021 on their wedding in 2011, excluding the cost of their honeymoon. The bulk of the five-figure sum goes into finding the right wedding venue, the best-looking wedding dress and engagement rings, and hiring competent videographers and photographers. Good planning helps couples to avoid spending a fortune on a nightmare wedding that will haunt them for the rest of their lives.
Most of XO Group Inc (NYSE:XOXO)’s offerings are either free or cost only a fraction of the total expense of a wedding. Free offerings include online content such as wedding vendor reviews, peer advice, checklists and articles hosted on XO Group’s websites. XO Group generated close to 60% of its fiscal 2012 revenue from national and local advertising placements on its websites.
Paid offerings include magazines published by XO Group Inc (NYSE:XOXO) and wedding supplies sold on its e-commerce website, which accounted for 19% and 17% of its fiscal 2012 revenue, respectively. These products make up a very low proportion of the total cost of a wedding, but are critical to the quality of the overall wedding experience. For example, brides could find many good ideas in wedding magazines costing tens of dollars, and potentially save up on thousands of dollars spent on wedding planners.
Secondly, 31% of brides began planning for their wedding one year in advance, compared with 28% of respondents for the 2010 survey. This illustrates that they are increasingly aware of the need and value of wedding planning, further boosting demand for XO Group’s services. In addition, couples starting early in their planning efforts will contribute to more eyeballs for XO Group’s websites and lead to more magazines and wedding supplies being sold.
In the first quarter of 2013, XO Group Inc (NYSE:XOXO) grew its quarterly revenue for its local advertising and publication segments by 10.7% and 12.7%, respectively, year-on-year on the back of increased wedding budgets. However, revenue for its e-commerce segment fell by 31.9%. Management launched the mobile version of its e-commerce site, The Knot Wedding Shop, with the aim of arresting the decline in its e-commerce business. I am positive on this initiative, given that the weddings survey referenced above also indicated that almost three-out-of-five brides used their smartphones for wedding planning.