A piece in BusinessWeek
- Investors are queueing up to buy shares of OpenTable (OPEN), the Internet company that allows customers to make restaurant reservations online. The stock is up 147 percent so far this year.
- Now the question is whether, with shares at record prices and near a record price-earnings ratio, the stock is getting overbooked. OpenTable's p-e ratio—a common measure of how cheap or expensive a company's shares are—is 161.
- In its home country, the U.S., San Francisco's OpenTable dominates its industry. Citigroup (C) analyst Mark Mahaney estimates the company has more than a 90 percent market share in the U.S. online restaurant reservation business. Moreover, there is room to grow, he argues: Less than 10 percent of U.S. restaurant reservations are made online, while online sales make up 60 percent of sales of such events as concerts and sporting contests. "Their competitor is the phone," says James Cakmak, an analyst at Sidoti & Co. "There's no doubt they're the dominant player. Their market position is secure."
- Shares climbed 8.8 percent on Sept. 13 after Citi's Mahaney upgraded his rating on the stock to buy from hold, saying his earnings expectations had risen 10 percent for 2011 and 19 percent for 2012. In a research note, Mahaney acknowledged he was telling investors to buy OpenTable less than three months after he told them, in June, that the shares were too expensive. "Why? How?" Mahaney wrote. "The facts have changed. Materially." He cited the initial results from OpenTable's experiment offering restaurant coupons, as well as the prospect of increased use by smartphone users.
- Then on Sept. 15, Chief Executive Officer Jeffrey Jordan made an announcement that the stock market took as the week's second piece of good news. OpenTable said it would acquire its chief British competitor, Toptable, which operates the Toptable.com website, for $55 million in cash.
- The argument for OpenTable is bolstered by recent success. Last quarter, revenue jumped 37 percent from a year earlier, to $22.45 million. Profit is up more than threefold, with net income rising 273 percent from a year earlier.
- More than 14,000 restaurants are connected to OpenTable's reservation network, which allows users to see in real time which restaurants have tables available. Its website saw 1.35 million unique visitors in August, according to ComScore (SCOR). With so many restaurants and users, Citi's Mahaney argues OpenTable may have reached a "tipping point." "The consumer selection has gotten better, leading to higher reservation activity," Mahaney wrote.
- OpenTable is rolling out a service it calls Spotlight, offering consumers weekly gift certificate coupons to OpenTable restaurants. As such, OpenTable is competing directly with Groupon, the Internet company that offers a "deal of the day" in local markets.
- Sidoti's Cakmak has a neutral rating. He says he doubts the extent of OpenTable's growth prospects in smaller U.S. cities. Reservations aren't as necessary to dine out in less dense cities, he says, compared with such places as New York, Chicago, or Los Angeles, where OpenTable is a strong presence.