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OpenTable Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of restaurant-reservation specialist OpenTable (Nasdaq: OPEN  ) sank 15% on Wednesday after its third-quarter revenue came in below expectations.

So what: OpenTable's top-line miss was so worrisome -- revenues grew 40% to $34.4 million, but Wall Street was expecting $35.7 million -- that analysts are being prompted to significantly cut their price targets. While 40% top-line growth isn't anything to sneeze at, the soft economy, rising costs, and increasing competition from the likes of Google (Nasdaq: GOOG  ) have investors seriously questioning OpenTable's prospects.

Now what: While the company didn't forecast any numbers for the fourth quarter, management did warn that a strong year-ago quarter would make comparisons tough. So, given that kind of uncertainty, which Mr. Market absolutely hates, the shares are likely to see plenty more pressure in the short term. Of course, with OpenTable now down a whopping 68% over the past six months alone, growth-seeking, enterprising investors might be a looking at a cheap long-term opportunity. 

Interested in more info on OpenTable? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of OpenTable and Google. Motley Fool newsletter services have recommended buying shares of OpenTable and Google. Try any of our Foolish newsletter services free for 30 days.

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Read/Post Comments (2) | Recommend This Article (3)

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  • Report this Comment On November 02, 2011, at 1:52 PM, tgauchat wrote:

    Exactly WHY is this a "long-term opportunity"? Their service has low barriers to entry and, thus, their recent growth rate is not sustainable -- in the "long-term". Providing on-line table reservations is no longer rocket-science (OpenTable used to (still does?) actually provide data lines and terminals to restaurants, for a monthly lease fee; but ubiquitous 3G internet and tablets eliminates that need). Is there a moat? Can't a well financed competitor swoop in with better pricing and drain that moat?

  • Report this Comment On November 02, 2011, at 9:46 PM, chadhenage13 wrote:

    I not sure about the "increasing competition from the likes of Google" how exactly? The Zagat acquisition has little to nothing to do with OpenTable. Zagat to my knowledge does not seat diners or help restaurants with reservation systems.

    Putting that aside @tgauchat their moat is the over 16,000 restaurants that already are signed up with OpenTable, the thousands and thousands of diners who have already used OPEN and want to use the same service again. Also how about the additional business that these restaurants get by using the OPEN model. Last each OPEN user gets points by using the service that then gets them rewards down the line. International growth has been 200%+ in the last several quarters and US growth has been between 25-40%. I think it's interesting that a revenue miss of about $1m while meeting earnings expectations leads to a haircut like today.

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