The restaurant-booking-website sector is beginning to flesh out a bit, and it looks as if it might be having an impact on OpenTable's
It's been three years since the company went public, and only a little over a year ago since the stock enjoyed a nearly $115 high a few months after spending a cool $55 million on European rival Toptable. Since then, it's been a slow and steady decline to the current $37 value as investors lose faith in the company. It's looking like OpenTable is suffering from stymied growth, while the specter of new competition curbs investor enthusiasm.
After its IPO, OpenTable quickly became the leader in the online restaurant-booking space. This led to some discontent among restaurateurs, who found the service useful but pricey. Soon, competitor Urbanspoon, owned by IAC/InterActive Corp.
Now, Scripps Networks Interactive
Google and Yelp are also seen as threats
As if that's not enough, investors are worried about competition that hasn't even occurred yet. The two entities seen as the biggest threats, due to their familiarity with consumers and market compatibility, are Yelp
Zagat, famous for its restaurant reviews and recommendations, could easily segue into the reservations market if Google decides it would be in its interest to do so. The same goes for Yelp, which currently partners with OpenTable to facilitate customer reservations from Yelp's website. It certainly wouldn't be a stretch for Yelp to add a reservation component to its offerings, cutting out OpenTable completely and trimming its customer base.
Fool's take
It's never a good idea to borrow trouble, but concerns about Google and Yelp are certainly well-placed. There is no doubt that OpenTable is still the dominant player here, but the business has been slow to grow, which always worries investors. Toptable has been a bit of a disappointment as well, and it appears to be dragging the company down rather than boosting it, even after 18 months. While it's true that the company's recent first-quarter report contained some good news along with the bad, there is definitely a disquieting tendency toward stagnation, or even backpedaling on gains. When the company released its much-rosier fourth-quarter report earlier in the year, it also took the opportunity to cut its EPS estimates for the next two years. What are investors to think?
Currently, only about 12% of diners use the Internet to book reservations, indicating a virtually untapped market. If OpenTable can't grow itself with that potential and minimal competition, what will happen if more, well-established entities enter the fray? If the company maintains this course, it is only a matter of time before its table becomes empty.
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