A few points about Opentable’s Q3 numbers, as it is up 17% pre-market…
1) The Q3 effective tax rate was 17%–without which EPS does not beat (it was 39% in Q2). It certainly helps to have lower taxes. If you consider greater shareholder dilution and tax adjust EPS, income only rose $0.006 per share from last quarter.
2) Revenue beat of $1.2M (~5%) on a $1.6B market cap company is insignificant.
3) Although the number of seated diners was up 54% and its installed restaurant base increased 31%, average monthly pricing declined YOY in US from $268 to $252 and average international subscription revenue declined from $204 to $171.
4) Although the number of installed restaurants is increasing, it is clear that the subscription revenue per restaurant is consistently lower every quarter.
6) Additionally, both the number of diners per installed restaurant and the reservation revenue per seated diner are both flat. This means that 100% of the company’s growth depends on the expansion of installed restaurants. The low hanging fruit restaurants have easily swang in Opentable’s direction, but it is extremely unlikely that they will be able to sustain this growth in the future.
7) But maybe installed restaurant growth is accelederating at a rate that justifies the extremely high expectations. However, that doesn’t seem to be the case.
8) OpenTable still sells for more than 100 times this year’s expected earnings, and 17 times estimated sales. Such multiples leave little room for missteps, even as the competition grows.
As some say, playing musical chair is all great and fun while the music is playing, but the fun always ends when the music stops. It will not take a day or a month, but eventually, Opentable’s music will stop, and my guess is that investors will be late at realizing this.