OpenTable: Troubled Times Ahead


OpenTable (NASDAQ:OPEN) enjoys a premium valuation for its unique business model which derives revenue from online reservations and subscriptions. However, recent announcements of Apple filing a patent application for a cloud-based platform which will include restaurants reservations worried the investors and led OpenTable’s stock price stumbling down $79.80 to $76.42. This along with the recent acquisition of SeatMe-OpenTable’s competitor, by Yelp (NYSE:YELP) , the online restaurant reviewer, has resulted in growing concerns among OpenTable investors. Will OpenTable survive its near-monopoly in online reservations amid growing competitors remain to be seen.  We look at how OpenTable works and its growth prospects ahead.

Opentable Revenue Model

Currently OpenTable earns revenues by two sources: online reservations and subscriptions. It provides restaurants a specialized hardware and software which helps restaurants manage their bookings and reservations for one time subscription fee and a maintenance free thereafter. Besides this, it also charges restaurants for online reservations for per seated guests made through their online platform. Current OpenTable enjoys a unique business model, and has no competitors with the same business. In Q3 2013, OpenTable reservations contributed 60% of the company’s revenues, while subscriptions contributed 34% and rest from other segment.

OPEN Segmental break upBased on the SEC filings of OpenTable

Opentable Financials

OpenTable’s financials are consistent and strong. It has reported an average revenue growth of 30.5% for 3 years, with an average operating margin of 21.9% for the same period. With a little drop in margins in year 2012 amid weaker customer traffic in restaurants, financials picked up in 2013. In Q3 2013, Revenues grew by 17.5% on a Y/Y basis, with a net income margin of 16.3%. Earnings per share stood at $0.33 per diluted share, beating consensus analysts’ expectations. OpenTable manages its resources well and has the ability to generate high margins, and therefore, has been consistently beating consensus analyst expectation. The balance sheet too shows a clear picture of no debt and great liquidity.

OPEN revenues and margins

Based on the SEC filings of OpenTable


Though OpenTable has fundamentally strong financials, its valuation metrics have reached very high levels due to its dominant presence in online reservations. However, competition could be a major downside risk for OpenTable. SeatMe, acquired by YELP, is now offering the cheaper services with the set-up costs free and maintenance fee of online reservations way cheaper as compared to OpenTable. The competition faced, might eat away OpenTable margins and the company may lose its premium valuation in the coming future. OpenTable is currently trading at 59 times its last twelve months (LTM) earnings, which is overpriced considering the internet software industry. Considering our QNET average Price to Earnings Ratio of 39, OpenTable fair price works out to be 39*1.23(LTM Earnings/share) =$47.97. Considering that the revenue and profit growth rates are stabilizing, with no exciting growth prospects ahead, the stock price of $76.42 looks fairly overvalued.

Opentable Yelp
Price to Earnings ratio (LTM) 59.2 NA
Price to Book value ratio 8.8 21.4
Price to Sales ratio (LTM) 10.2 20.7

Based on the SEC filings of OpenTable

Although OpenTable might benefit due to increase in market spend in the economy and growth coming from mobile users, we believe these opportunities are more than adequately reflected in the stock price. Given its premium valuation, its best to remain on the side-lines and watch out how the competitive battle turns out. But, definitely not a buy.

To see OpenTable’s latest stock price movement, click here (NASDAQ:OPEN)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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