Hate is a stacked sandwich at OpenTable (Nasdaq: OPEN) this week.

It's been bear meat tartare on the newswire:

  • A SeekingAlpha.com contributor who chooses to write under the pseudonym Fund Manager waxes pessimistically yesterday, arguing that analyst profit targets can't be trusted and that the National Restaurant Association may roll out a competing platform.
  • Benzinga.com's Kevin Light also complains about the valuation and investor complacency with the lack of meaty competition.
  • CNBC's Herb Greenberg is back with another negative piece, this time leaning on a bearish report by PAA Research's Brad Safalow.

The negativity comes at a time when OpenTable was hoping to be celebrating. It issued a press release this morning to announce that it has now seated 200 million cumulative diners, accounting for roughly $8 billion in revenue for the restaurant industry.

Let's take a closer look at the party crashers.

Foiled gras
OpenTable isn't cheap by most metrics. It trades at 77 times this year's projected profitability and 51 times next year's bottom-line target. Seeking Alpha's fund manager suggests that those lofty sums could even be higher since Mr. Market's estimates aren't to be trusted.

"Forward P/Es are based on ANALYST PROJECTIONS, many of which can be flawed or can be tainted by the motives of the analyst's firm," he writes.

Really? I didn't want to do this, but I'm breaking out a table.


EPS Estimate

EPS Actual


Q1 2010 $0.12 $0.14 17%
Q2 2010 $0.12 $0.15 25%
Q3 2010 $0.15 $0.23 53%
Q4 2010 $0.22 $0.33 50%

Source: Yahoo! Finance.

I'm only going through last year, but OpenTable has blown Wall Street's estimates out of the water every single quarter since going public two years ago. I don't care if an analyst has an underwriting relationship with a company or is in a fantasy football league with its COO. Numbers don't lie, and history and momentum fall on the side of the pros likely to be underestimating when it comes to the future.

United we spaghetti strand
"It is VERY likely that the National Restaurant Association (NRA) could be WORKING ON a restaurant reservations system for its member restaurants, and it could be FREE as part of a NRA membership," Fund Manager writes.

The NRA claim is far-fetched. It's true that the organization representing nearly 400,000 of the country's 960,000 restaurants recently hired an executive who came from small OpenTable rival LiveBookings.com, but since when has the NRA done something so polarizing as taking sides? Throwing its hat into the Web-based reservations market would clear the booths at the annual NRA Show in Chicago of enterprise specialists who feel that their niches may be targeted next! It's just as likely for the NRA to take on foodservice giant Sysco (NYSE: SYY) by rolling out its own fleet of refrigerated trucks as it is to enter the electronic reservations book market where only a handful of its members would even be considered part of the addressable market.

It's a thesis made by people that may not entirely understand the purpose of the NRA. Either way, StreetInsider.com contacted the NRA and was told that the company is not currently exploring a proprietary reservations platform.

Petit force
Herb Greenberg is a class act as a person and one of the sharpest financial minds on TV. He just doesn't have a clue when it comes to reading OpenTable's tea leaves.

He was gutsy enough to put out a bearish segment in November, ahead of OpenTable's third-quarter report. He got run over as another blowout quarter, accelerating sequential revenue growth, and greater revenue per North American restaurant blew holes in most of his earlier arguments.

A common theme raised by all of this week's bad news bears is that OpenTable's total addressable market isn't as big as bulls might think. I don't buy it. I don't think anyone is under the delusion that OpenTable's market will ever grow beyond the tens of thousands of high-end eateries that require reservations.

Did you catch this morning's press release? Divide those 200 million foodies by the $8 billion they ate and you get an average of $40 per diner.

In other words, these aren't the companies that flinch over OpenTable's installation and subscription fees. What's $0.25 for a patron's direct reservation or $1 through OpenTable.com -- the same rates as LiveBookings, by the way -- for eateries charging $40 a head? Even when you tack on the subscriptions and hardware, it works. If it didn't, OpenTable wouldn't be growing, would it?

If restaurants are willing to trade $1 of food and drinks for $0.25 through Groupon and other social buying sites, do you really think they're going to flinch at a more cost-effective platform that is filling up their seats at an accelerating rate?

Companies like LiveBookings and IAC's (Nasdaq: IACI) UrbanSpoon will command their thin slices, but OpenTable has the economies of scale to make it work.

Yes, OpenTable isn't cheap, but shares of Travelzoo (Nasdaq: TZOO) and The Knot (Nasdaq: KNOT) have joined OpenTable in taking off since jumping into the high-margin niche of Groupon-esque offers. Google was willing to pay $6 billion for Groupon, so why can't investors get behind the real reason why OpenTable is a rock star these days.

It's not necessarily the expanding North American market that is pumping helium into OpenTable's shares. Bulls are imagining how much more the company can make on foodies through its Spotlight voucher initiatives. Bulls see the open-ended potential of overseas expansion.

Bears aren't just misreading the menu. They're several courses behind.

OpenTable is revolutionizing the way restaurants engage diners. If you want to see another new technology that is revolutionizing its own niche, check it out in this free special report.