Take a Bite Out of This Tasty IPO

With casual-dining chains struggling and higher-end eateries suffering even more, now would seem like an atrocious time for OpenTable to go public. Tell that to the online reservations specialist, which filed with the SEC on Friday.

Never heard of OpenTable? You need to eat out more. OpenTable.com gives foodies the ability to make free reservations at some of the trendiest restaurants in town, sometimes collecting reward points in the process. The company services the actual restaurants with an electronic reservation-book platform that combines online bookings with telephone requests.

Believe it or not, this is a growth industry. Revenue grew 41% to $41.9 million through the first three quarters of 2008, after notching top-line gains of 63% and 51% in 2006 and 2007, respectively. OpenTable has been profitable on an annual basis since 2006.

Surprised? You shouldn't be. The more competitive the environment, the more intense the quest to drive online leads. Bankrate.com (Nasdaq: RATE  ) continues to grow its ad revenue from financial-services providers, even as banks and credit card companies face major headwinds. The Knot (Nasdaq: KNOT  ) is growing in its wedding-services niche, even as couples scale back their matrimonial budgets.

OpenTable offers exposure at a time when even the hottest restaurants have empty tables. Several rival sites, including Yelp, CBS' (NYSE: CBS  ) Chowhound, and IAC's (Nasdaq: IACI  ) Citysearch, offer editorial and community eatery reviews, but OpenTable also brings the convenience of online reservations to the table.

The restaurant-facing operations are also an easy sell, since managers are able to quickly recall previous visits, dining preferences, and any special occasions through the Web-connected reservation book.

In short, OpenTable clearly works for both parties. The number of participating restaurants in North America has grown from 1,611 in 2003 to 8,788 as of last September. More than 25 million diners were seated as a result of OpenTable.com reservations through the first nine months of 2008. Would many of those guests have simply called in their reservations if the website didn't exist? Probably, but why take the chance?

This has definitely been a dead market for new stock offerings, though both of last year's final IPOs -- webhost RackSpace (NYSE: RAX  ) and online educator Grand Canyon Education (Nasdaq: LOPE  ) -- are Internet companies.

OpenTable isn't a lock to IPO. As many of its restaurateur clients know, just because you set the table doesn't mean that someone will be hungry for what you have to offer.

OpenTable deserves better than the apathy it will likely receive. You can't judge this tempting offering by the bland menu cover.

Some interesting ways to profit from the IPO void:

Bankrate and The Knot are Motley Fool Rule Breakers recommendations. Try any of our Foolish newsletters today, free for 30 days

Longtime Fool contributor Rick Munarriz is a fan of new stocks. 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.


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