OpenTable: Slightly Cooled, Still Delicious

Investors didn't like how the earnings they ordered from OpenTable (Nasdaq: OPEN  ) turned out, so they're sending back last night's quarterly report.

Revenue climbed 53% to $34.3 million, well short of the 57% top-line surge that analysts were projecting. Adjusted earnings more than doubled to $0.33 a share -- comfortably ahead of the $0.27 a share that the pros targeted -- but the damage was already done. When you're valued as richly as shares of OpenTable are, you can't afford to slip on either end of the income statement.

OpenTable's performance looks solid on an absolute level. A meaty European acquisition padded its overseas metrics, so let's focus instead on its flagship North American business. There are now 15,560 restaurants on the OpenTable platform, 27% more than a year ago. OpenTable seated 22.2 million diners during the period, a welcome 47% pop. North American revenue climbed 38% to $29.2 million.

This is exactly the win-win-win scenario that makes OpenTable so compelling for restaurant owners, foodies, and the company itself. When that 47% jump in reservations exceeds the 27% uptick in participating restaurants, it means that the average establishment is attracting more patrons. But when revenue's 38% increase can't keep pace with the surge in reservations, it means that restaurants are paying less per seated diner. 

Keeping restaurants on the system is critical, because that keeps upscale diners flocking to OpenTable.com and cracking open the app whenever they need to make a dining reservation.

No one is close to OpenTable's popularity, even though IAC's (Nasdaq: IACI  ) Urbanspoon is trying to compete with its cheaper Rezbook solution. Replacing OpenTable's elaborate electronic reservations book with an iPad app solution is interesting, but it's hard to attract hungry diners when the hottest restaurants are already entrenched on OpenTable.

Shares of OpenTable were on fire late last year, as the company joined travel deals publisher Travelzoo (Nasdaq: TZOO  ) and wedding planning website operator XO Group (NYSE: XOXO  ) in hopping on the Groupon bandwagon by selling prepaid deals in their respective specialties.

Valuations got frothy, and investors have become restless waiting for those couponing initiatives to pay off. Shares of Travelzoo and OpenTable have now sold off after their latest quarterly reports.

Don't give up on OpenTable just yet. It continues to post strong growth and widening margins, and one has to wonder what the results will look like once the economy improves to the point where folks hit up upscale restaurants more often.

Fickle investors ought to know that some dishes are perfectly good, even when they're only lukewarm.

Have you ever avoided a stock that seemed overpriced, only to find it trading substantially higher later? Share your thoughts in the comment box below.

Motley Fool newsletter services have recommended buying shares of Travelzoo and OpenTable. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz is a fan of new stocks, and has even recommended several fresh IPOs to newsletter readers in the past -- including OpenTable. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (2)

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  • Report this Comment On August 03, 2011, at 4:36 PM, chadscards1274 wrote:

    Well put, in this wallet hugging environment a less then 3% miss on revenues versus a 22% beat on earnings....I'll take that trade off anytime. OPEN won't be as richly valued if they keep up the good work with earnings.

  • Report this Comment On August 03, 2011, at 4:39 PM, teconom wrote:

    I disagree with the auther, this stock is going back to its IPO price... They missed on revenue and eps looks a bit like fancy accouting tricks. The whole business model is flawed. FB or Goog will come out with a free ap that will make OPEN obsolete. I dont believe this company is luke warm...its definitely cold turkey.

  • Report this Comment On August 03, 2011, at 7:45 PM, BadCopNoDonuts wrote:

    Nice pump attempt, but the writing is on the wall! All the Sheeples have moved on to the next over-inflated fad stock................ GMCR.

  • Report this Comment On August 03, 2011, at 11:41 PM, Bot1 wrote:

    It is all how one decides to slant the article, eh?

    Sequential growth has basically stopped dead. Europe is expected to lose money for the foreseeable future. The share price is over 15X revenue, PE is roughly 60 based on this quarter, they are finally paying a reasonable level of taxes, Net profits rose almost 50% sequentially which does not make sense on almost no growth and increasing taxes, so it will require some investigation into the numbers for "quality purposes", they have a disproportionately large amount of goodwill and intangible assets on the books from the money losing acquisition, executive insiders have all been selling their options briskly and that has been diluting other holders, , the CEO left, low cost competiion is heating up, there have been some unhappy customers leaving Open Table ...

    ... but heck, if Suzie Sunshine says everything is great and has such an in-depth analysis, then who are we to argue?

  • Report this Comment On August 04, 2011, at 8:04 AM, showmethefacts wrote:

    This article is shallow and seems like an attempt to pump. The PE is silly, even after the drop in stock price. Growth is slowing. I am not optimistic about an economic rebound spurring people to go spend more money on high-end restaurants. To the contrary, the budget-cutting that is going on (and will continue under the Super Congress proposal) is guaranteed to slow US economic growth. Whatever your politics, if any, it's very simple economics: remove government spending and you take money out of the economy. If entitlement programs are cut next (which is inevitable in my view), you will remove even more money from the economy. If the seniors get a lower cost-of-living increase, then they'll spend less. Face it: we went on a national spending binge under Republicans and Democrats. We lowered taxes (Bush) and increased government spending (Bush, Obama). Time to sober up. Remember the Clinton surpluses? Before the Bush tax cuts? To start moving back towards the kind of balance we had then, we'll need to BOTH spend less (the Republican "solution") and tax more (the Democrats' "solution). Both are inevitable. That's recessionary. Do not look for an economic recovery to bail out OPEN.

  • Report this Comment On August 04, 2011, at 10:50 AM, David369 wrote:

    This is one of those "dreaded one star CAP stocks". It must be bad. Let's see it is the only company that really offers this service now so it has a moat. Granted that can be filled in easily enough if others decide to but no one has yet and may never want to. Business keeps growing. I guess you can say they are innovative, yeah that would work ok. Used primarily by the middle and upper class. The upper class are pretty much unaffected by the bad economy. If it wasn't for the analyst's overblown expectations (they didn't analyse it right) the stock would have probably gone up instead of down based on their numbers.

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