OpenTable Eats Its British Competition

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Shares of Web-based reservations specialist OpenTable (Nasdaq: OPEN  ) hit new highs this morning, following its purchase yesterday of its largest rival in the United Kingdom.

OpenTable isn't as popular abroad as it is at home. The high-end eateries that use its electronic reservations book system in other countries number only 1,878, compared to 12,250 North American locations. OpenTable is also sporting losses abroad, which unfortunately can't be used to offset the tax bite on profits back home. This inflates the company's effective tax rate, though not to the extent we've seen at travel publisher Travelzoo (Nasdaq: TZOO  ) ; its effective tax rate was actually greater than 100% at one point two years ago.

The acquisition will help OpenTable scale quickly, since TopTable seats 3 million diners annually through its 5,000 restaurant accounts. OpenTable is only paying $55 million for the company.

Hungry Europeans aren't the only ones coming to the table. Analysts are also warming up to OpenTable. Merriman Capital upgraded the shares this morning, on the heels of a Citigroup upgrade earlier this week.

The stock's valuation isn't necessarily for the weak of heart. Then again, cynics were saying the same thing when I recommended the shares to Motley Fool Rule Breakers newsletter subscribers last summer. OpenTable has gone on to more than double since. Between international expansion, Groupon-esque initiatives, and the potential for revenue and scalable earnings to escalate in an improving economy, bears have largely fallen silent.

This doesn't mean that OpenTable will run away with this market. IAC's (Nasdaq: IACI  ) Urbanspoon is quietly rolling out a competitive online booking tool. Companies that have access to folks seeking a place to eat -- from Garmin (Nasdaq: GRMN  ) to Google (Nasdaq: GOOG  ) -- may want in on this meal before the plates are cleared.

If anything, the fear of potential entrants makes this week's TopTable deal that much better. OpenTable may as well snap up players in the field before everybody else wakes up to its potential.

Did you phone in your last restaurant reservation, or use a website or smartphone app? Share your thoughts in the comments box below.

Google is a Motley Fool Inside Value recommendation. Google and OpenTable are Motley Fool Rule Breakers choices. The Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

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.

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