OpenTable Inc. (OPEN) Q3 2010 Update

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.

8 Responses to OpenTable Inc. (OPEN) Q3 2010 Update

  1. I continue to believe that the most important metric is revenue per seated diner per restaurant. If it goes up substantially, OPEN has a possibility of growing into its valuation. If it doesn’t, they can’t.

    If my math is right, this metric actually went down in Q3 compared to Q2 and is only up very modestly over the last 2+ years.

  2. I agree with Zimmer on this metric.

    Can you produce a chart outlining revenue/seated diner/restaurant? Or even just revenue per seated diner and rate of restaurant base increase.

    Just personally, I’ve used this service only once and am uncertain as to how it can remain profitable unless it’s well advertised and effectively incentivizes diners.

  3. Can you talk a bit more about the growing competition?

    • John, to read about OpenTable and the threat of competitors, see:

  4. You still haven’t addressed the potential of Spotlight, which some believe could be a major contributor to revenue/earnings going forward.

    • somedude, Spotlight is not becoming as important as was initially projected by many analysts IMO. Check out the spotlight deals and do the math with a 30-40% margin and you can see that it’s not a substantial contributor. They will have to expand to a lot more cities to make Spotlight a real game changer and over the last two months they have really slowed the city rollout to a crawl/none at all in the last several weeks. At this rate it will contribute maybe $0.01-0.02 to EPS from my calculations.

  5. I agree with your thoughts up until the last paragraph. Musical chairs is just walking around until the music stops, then it becomes fighting for chairs, which is way more fun than the former.

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