Eateries may be suffering through the recession, but the same can't be said for the high-tech company that is helping its biggest stars fill their tables.
OpenTable
Revenue climbed 18% to $16.4 million. Earnings more than tripled to $0.7 million, or $0.03 a share, (or twice as much if you back out stock-based compensation expenses).
Don't lose your appetite over the uninspiring net margins of 4%. They're as real as plastic fruit. The company is growing nicely in North America, where most of its restaurateur clients are, but it's growing even faster in Europe. Losses are narrowing overseas, but they're still eating into OpenTable's bottom line. Compounding the red ink, losses in Europe can't be used to offset taxable gains closer to home.
In short, more than half of the $1.465 million in pre-tax profits went to Uncle Sam. That metric will change as European operations continue to improve. It's a trans-Atlantic hiccup that has also stung travel publisher Travelzoo
OpenTable's network now consists of 11,164 restaurants, 22% more than it had on its rolls a year ago. Nearly 10.3 million diners were seated through the company's proprietary online reservations system during the quarter.
It's the ultimate network effect, as the growing popularity of OpenTable.com as a reservations platform makes it a worthwhile investment for restaurants that want to stay afloat. OpenTable generates revenue by installing its digital reservation systems, followed by monthly subscription fees and small charges for every reservation.
Restaurants will go to great lengths to fill their tables. They offer marked-down meals through Rewards Network
Larger chains can turn to print advertising, offering coupons through Valassis
The attraction to OpenTable is that it offers a self-contained platform that seamlessly blends online and phone-in reservations, making operations easier. It also delivers new business, with the average North American OpenTable client receiving more than 1,000 diners via the service during the period. OpenTable claims that all it takes is 12 incremental diners a month to cover the system's cost, so it's no surprise to find more and more restaurants on the OpenTable platform. It made it easy for me to recommend the stock to Motley Fool Rule Breakers subscribers shortly after the IPO.
The stock's valuation isn't cheap, even by foodie standards. However, you're not going to find a category killer with an impressive network effect -- like eBay
The best meals are worth paying up for.
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