BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F BUY November 12, 2017 BUY RATING SINCE 12/16/2016 TARGET PRICE $21.59 BUSINESS DESCRIPTION XO Group Inc. provides multiplatform media and marketplace services to the wedding, pregnancy and parenting, nesting, and local entertainment markets. STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change -0.17 9.42 8.83 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues 9.54 6.68 4.58 Net Income 75.10 30.21 83.11 EPS 85.71 32.00 87.58 RETURN ON EQUITY (%) Ind Avg S&P 500 Q3 2017 4.98 13.61 13.41 Q3 2016 3.83 14.14 11.79 Q3 2015 2.26 13.39 12.91 P/E COMPARISON Sector: Technology Sub-Industry: Internet Software & Services Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years Rating History BUY HOLD BUY BUY Volume in Millions 2015 2016 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History TARGET PRICE $21.59 22 21 20 19 18 17 16 15 14 2 1 0 56.64 EPS ALYSIS¹ ($) 43.94 Ind Avg 24.85 S&P 500 RECOMMENDATION We rate () a BUY. This is driven by several positive factors, which we believe should have a greater impact than any nesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth and expanding profit margins. We feel its strengths outweigh the fact that the company shows operating cash flow. HIGHLIGHTS The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 75.1% when compared to the same quarter one year prior, rising from $1.91 million to $3.34 million. Q1 0.06 Q2 0.13 Q3 0.11 Q4-0.09 Q1 0.12 Q2 0.15 Q3 0.07 Q4 0.13 Q1 0.01 Q2 0.06 Q3 0.13 's revenue growth trails the industry average of 22.5%. Since the same quarter one year prior, revenues slightly increased by 9.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.38, which clearly demonstrates the ability to cover short-term cash needs. 2015 2016 = not available NM = not meaningful 2017 1 Compustat fiscal year convention is used for all fundamental data items. reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, increased its bottom line by earning $0.47 versus $0.21 in the prior year. For the next year, the market is expecting a contraction of 23.4% in earnings ($0.36 versus $0.47). The gross profit margin for is currently very high, coming in at 94.25%. Regardless of 's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, 's net profit margin of 8.30% is significantly lower than the industry average. PAGE 1
PEER GROUP ALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) -50% 350% APTI UNFAVORABLE ACTA CRCM -15% EBITDA Margin (TTM) BV QNST FAVORABLE APPF MIXT TTGT IP 35% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $271.4 Million and $602 Million. Companies with or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -50% 350% UNFAVORABLE IP -70% Earnings Yield (TTM) APTI FAVORABLE RENN APPF CRCM MIXT ACTA BV QNST TTGT 10% Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -8.8% and 344.2%. Companies with or NM values do not appear. INDUSTRY ALYSIS The US internet software and services industry includes companies that develop and market internet software and provide services such as online databases, interactive services, web address registration, database construction, and website design. The industry is highly competitive and characterized by rapid technological changes, evolving industry standards, and frequent new product and service developments. The industry includes about 4,000 companies, with combined annual revenue of approximately $30 billion. Alphabet (GOOG), ebay (EBAY), and Yahoo (YHOO) are major players. Over the past decade, consumers have embraced the online channel to purchase goods and services. The number of worldwide consumers becoming more comfortable in using the internet to purchase goods or services is expected to continue to grow. Increasing online availability of services and declines in broadband tariffs and associated hardware prices will continue to drive robust growth. There is an on-going trend toward industry consolidation as leading companies seek access to new technology and customer bases developed by recent start-ups in order to increase market share. Recent acquisitions by large and well-capitalized technology companies have altered the competitive landscape. Profitability of individual companies depends largely on volume and efficient operations and small companies compete by serving niche segments or by providing technical expertise. The industry is highly competitive, particularly in the advertising segment. This competition has intensified as a result of consolidation and low entry barriers, which has caused price reductions for advertising space, implying a drop in margins. Another challenge facing the industry is related to secure transmission of personal information over public networks. These networks are vulnerable to unauthorized access by hackers and computer viruses. Allowing unauthorized access to users information subjects a company to reputational, financial, and legal risks. Looking forward, companies success will depend on their ability to adopt rapidly evolving technologies, alter services to meet industry standards, and improve the performance and reliability of services. Investment in research and development will continue to be an integral part of company and industry success. PEER GROUP: Internet Software & Services Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) 18.69 480 56.64 159.23 8.52 APPF APPFOLIO INC 41.50 602 1,383.33 124.18 1.04 CRCM CARE.COM INC 18.96 570 632.00 169.64 6.18 RENN RENREN INC 10.62 506 NM 81.49-149.48 ACTA ACTUA CORP 15.60 502 NM 118.96 80.62 APTI APPTIO INC 21.30 492 NM 180.47-26.65 QNST QUINSTREET INC 9.00 411 NM 313.77-7.19 BV BAZAARVOICE INC 4.42 380 NM 203.30-13.15 TTGT TECHTARGET INC 13.00 359 260.00 102.66 1.40 IP INTERP CORP 3.73 311 NM 289.83-131.92 MIXT MIX TELEMATICS LTD 11.32 271 27.61 120.73 9.33 The peer group comparison is based on Major Internet Software & Services companies of comparable size. PAGE 2
COMPANY DESCRIPTION XO Group Inc. provides multiplatform media and marketplace services to the wedding, pregnancy and parenting, nesting, and local entertainment markets. The company operates a network of Websites under various brands, such as The Knot, which offers wedding resources and marketplaces through wedding Website and mobile apps, national and local wedding magazines, and nationally published books; and The Bump, a pregnancy and parenting brand that provides personalized information, content, and tools for navigating the journey from fertility to pregnancy and parenting through the toddler years. Its network of Websites also include The Nest, which focuses on nesters setting up homes and navigating new lives together; and GigMasters, an event marketplace for finding and booking the entertainment and vendors for birthday parties, weddings, anniversaries, corporate events, and others. The company also offers national online advertising programs comprising display advertisements, custom and brand-integrated content, direct e-mails, and placement in its online search tools; and local online advertising programs, such as online listings, digital advertisements, and direct e-mail marketing. In addition, it provides transaction offerings that include a registry service that enables users to create, manage, and share multiple retail store registries from a single source; and retailer and local vendor offerings, such as invitations, stationery, reception decor, and personalized gifts. Further, XO Group Inc. publishes The Knot national and regional magazines. The company was formerly known as The Knot, Inc. and changed its name to XO Group Inc. in June 2011. XO Group Inc. was founded in 1996 and is headquartered in New York, New York. 195 Broadway, 25th Floor New York, NY 10007 USA Phone: 212-219-8555 http://www.xogroupinc.com Employees: 1000 STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 4.5 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 80% of the stocks we rate. Total Return 3.5 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 60% of the companies we cover. Efficiency 3.5 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 60% of the companies we review. Price volatility 4.0 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 70% of the stocks we monitor. Solvency 3.0 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 50% of the companies we analyze. Income 0.5 out of 5 stars Measures dividend yield and payouts to shareholders. This company pays no dividends. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial FINCIAL ALYSIS 's gross profit margin for the third quarter of its fiscal year 2017 is essentially unchanged when compared to the same period a year ago. The company has grown its sales and net income during the past quarter when compared with the same quarter a year ago, and although its growth in net income has outpaced the industry average, its revenue growth has not. is extremely liquid. Currently, the Quick Ratio is 4.38 which clearly shows the ability to cover any short-term cash needs. The company's liquidity has increased from the same period last year. 0.11 Q4 FY17 0.36 E 2017(E) 0.47 E 2018(E) During the same period, stockholders' equity ("net worth") has remained unchanged from the same quarter last year. Overall, the key liquidity measurements indicate that the company is very unlikely to face financial difficulties in the near future. INCOME STATEMENT Net Sales ($mil) 40.24 36.73 EBITDA ($mil) 6.76 4.63 EBIT ($mil) 5.20 3.05 Net Income ($mil) 3.34 1.91 STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 100.85 100.07 Total Assets ($mil) 201.97 206.13 Total Debt ($mil) 0.00 0.00 Equity ($mil) 170.84 170.34 PROFITABILITY Gross Profit Margin 94.25% 95.13% EBITDA Margin 16.80% 12.59% Operating Margin 12.92% 8.30% Sales Turnover 0.79 0.72 Return on Assets 4.21% 3.17% Return on Equity 4.98% 3.83% DEBT Current Ratio 4.61 4.22 Debt/Capital 0.00 0.00 Interest Expense Interest Coverage SHARE DATA Shares outstanding (mil) 26 26 Div / share 0.00 0.00 EPS 0.13 0.07 Book value / share 6.65 6.43 Institutional Own % Avg Daily Volume 81,875 116,197 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
RATINGS HISTORY Our rating for has not changed since 12/16/2016. As of 11/9/2017, the stock was trading at a price of which is 11.0% below its 52-week high of $20.99 and 24.7% above its 52-week low of $14.99. 2 Year Chart BUY: $16.91 HOLD: $16.00 BUY: $17.19 2016 BUY: $20.06 HOLD: $16.53 $22 $20 $18 $16 MOST RECENT RATINGS CHANGES Date Price Action From To 12/16/16 $20.06 Upgrade Hold Buy 11/4/16 $16.53 Downgrade Buy Hold 5/5/16 $17.19 Upgrade Hold Buy 3/4/16 $16.00 Downgrade Buy Hold 11/9/15 $16.91 No Change Buy Buy Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 11/9/2017) 44.18% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.60% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 25.23% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION BUY. 's P/E ratio indicates a significant premium compared to an average of 43.94 for the Internet Software & Services industry and a significant premium compared to the S&P 500 average of 24.85. To use another comparison, its price-to-book ratio of 2.81 indicates a discount versus the S&P 500 average of 3.16 and a significant discount versus the industry average of 6.99. The price-to-sales ratio is well above the S&P 500 average, but well below the industry average. Price/Earnings 56.64 Peers 43.94 Premium. A higher P/E ratio than its peers can signify a more expensive stock or higher growth expectations. is trading at a significant premium to its Price/Projected Earnings 39.77 Peers 26.19 Premium. A higher price-to-projected earnings ratio than its peers can signify a more expensive stock or higher future growth expectations. is trading at a significant premium to its Price/Book 2.81 Peers 6.99 Discount. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a significant discount to its Price/Sales 3.02 Peers 10.05 Discount. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a significant discount to its industry on this measurement. DISCLAIMER: Price/CashFlow 19.61 Peers 25.34 Discount. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a discount to its Price to Earnings/Growth NM Peers 0.27 Neutral. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. 's negative PEG ratio makes this valuation measure meaningless. Earnings Growth lower higher 32.00 Peers 43.60 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth lower higher 6.68 Peers 33.02 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5