Updated Short Case for OpenTable (OPEN)

The short presentation on OpenTable has been updated with the latest quaterly numbers, which were  reported on November 2nd.

3 Responses to Updated Short Case for OpenTable (OPEN)

  1. Pingback: Does OpenTable Valuation Depend on Interplanetary Expansion? | Clogr.com

  2. Interesting, thanks! Here’s a perspective on OPEN from a restauranteur here in SF:
    http://insidescoopsf.sfgate.com/incanto/2010/10/18/is-opentable-worth-it/

    Not that you asked, but a few thoughts:

    1. To my mind, OpenTable’s model is similar in some respects to a franchisor. They’re paid an installation fee (aka area development fee), and flat recurring revenues + some transaction-based revenue (aka a revenue royalty). Pure franchisors–with no company-operated stores–should have margins that approach software-like levels. I don’t know the restaurant industry well enough to know what a pure-play comp might be, but that might be an interesting comparison.

    2. I’m a bit confused by OPEN’s deferred revenue numbers. In typical software-as-a-service companies (which OPEN also resembles), deferred revenue is a crucial indicator, as it’s the “tailwind” of revenues that can be recognized in coming quarters. Perhaps I’m not understanding correctly, but I’m a bit surprised that OPEN’s deferred revenue balances aren’t growing more quickly. According to the 10K, revenue for installation fees is recognized over the 6-year estimated life of an account, so presumably that’s what we’re seeing in the non-current portion of deferred revenue. Not sure how OpenTable does it, but most SaaS companies bill for the full year and recognize revenue on a monthly basis (since they nominally charge per-user-per-month). If OPEN does it the same way, that’s presumably the balance in the current portion of deferred revenue. I would have expected to see both current/non-current balances climbing more substantially, given that they seem to be signing up quite a few new restaurants each quarter. I suppose they could also be lowering their installation/monthly fees or the six year estimate was too high and has been lowered? Or do these new restaurants do not actually appear in bookings until sometime after they’re reported as “signed?”

    3. Do they report any same-store-sales or installed-for-more-than-X-months type numbers for seated diners? Or report any churn #s for installed restaurants? Both of those are pretty standard metrics for software-as-a-service type companies, which seems to be how the market values the company right now (and which their financial model resembles). OPEN’s service, it seems to me, is especially valuable for new restaurants, which are thought to have rather high failure rates in the first 12 months.

    4. I wonder if one can back into what their pipeline looks like in general terms from the “supply” side–if you do the math on [new installations] / [# of field employees] to see what that in terms of their capacity to grow restaurant installations quarter by quarter. In their job listings for field reps, they indicate 3 installations per week per rep (they say “averaging 3 sites per week” for “Restaurant Operations Consultants” here: http://www.opentable.com/info/jobs.aspx).
    13025 – Sep 2010 vs. 12250 – Jun 2010 is roughly 60/week / [3/wk/rep] = ~20 reps.

    5. One other way to look at this would be restaurant-level seat penetration. In steady-state, each restaurant has a fixed available capacity of addressable reservations, roughly [# of seats] x [lunch + dinner] x [open days/week] x [30 days/month]. I wonder what the % of those seats filled by OPEN looks like for restaurants that have been installed for > 6-12 months. (My guess would be it eventually tops out at some relatively steady level.) Unless they’re growing “share of diners” per restaurant, the only way they can grow is to add more restaurants or increase their prices per seat (which doesn’t seem to be happening).

    Sorry for the long comment, guess I should get my own blog.

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