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Investment Overview for OpenTable (NASDAQ:OPEN)
Below are key drivers of OpenTable's value that present opportunities for upside or downside to the current Trefis price estimate for the company's stock:
- Diners per North American Restaurant: The number of diners in North America making reservations through OpenTable in a year increased from just under 25 million in 2007 to almost 115 million in 2012. This equates to an increase in the number of diners per North American restaurant making reservations through OpenTable from 3,330 in 2007 to 6,050 in 2013. We expect substantial continued growth, but should the company face increased competition from new players in the market its growth could subside. If the average annual growth is 5% as opposed to our current estimate of roughly 8%, the number of diners per North American restaurant making reservations through OpenTable would reach roughly 8,500 by the end of our forecast period. This would result in a downside of nearly 9% to the Trefis price estimate
- Reservation Revenue per North American Diner: We forecast a steady increase in OpenTable's average revenue per diner in the future because more diners use OpenTable's website to make reservations as opposed to restaurant websites. OpenTable charges restaurants 25 cents for each diner who reserves a table through the restaurant's website, and $1 for each diner who reserves through OpenTable's website or mobile application. If the number of diners making reservations directly through OpenTable increases annually by 20% instead of our current estimate of 15%, the per diner revenue would reach 75 cents by the end of the Trefis forecast period. This would result in a 5% upside to the Trefis price estimate. However, if the company were to abolish the 25 cent fee for using the restaurant websites in the next two years, this would reduce the per diner average revenue to under 60 cents at the end of our forecast period. This would result in a downside of nearly 10% to the current Trefis price estimate.
OpenTable is the leader in online restaurant reservations, offering free, real-time reservations for diners as well as reservation and guest management services to restaurants. OpenTable allows customers to make reservations at more than 31,500 restaurants, and seats 15 million diners each month as of Q1 2014. While most of its business is currently in the United States, OpenTable also has a considerable presence in Canada, Germany, Japan, Mexico, and the United Kingdom.
The OpenTable service is free for diners, and generates revenues from its restaurant customers. This revenue includes a one-time installation fee for the touchscreen computer system in which OpenTable's proprietary software is installed, a monthly subscription fee, a reservation fee charged per diner seated using the company's system and any other revenues from advertising on its website.
In October 2010 OpenTable completed the acquisition of toptable.com, a former competitor that has a notable presence in the United Kingdom. Nearly 3 million diners are seated at restaurants each year via toptable.com.
The company's primary source of value is its reservation revenue, which is driven by the company's strong market position and brand recognition.
Strong presence in North America
OpenTable provides reservation services to around 24,000 restaurants in North America, giving it an almost 50% share of the region’s reservation-taking restaurant market. Although barriers to entry are very low, OpenTable currently has no major competitor in North America yet. Given OpenTable's ubiquity we expect that it will be difficult for a competitor to take meaningful market share in the near-term.
Online reservations bring more business to restaurants and also manages diners better
OpenTable’s per diner reservation revenue figures for recent quarters suggests that more than two-thirds of all the reservations made at a restaurant were through the OpenTable website. The conclusion that more diners make online reservations using the OpenTable website than the restaurant’s own website is indicative of the company's importance to the restaurant industry. Additionally the company's online database of restaurants is an effective way of bringing new customers to restaurants.
Moreover, full service restaurants benefit greatly from repeat diners and thus are constantly looking for ways to provide diners with more personalized services and experience. The OpenTable system makes managing diner information simple and effective for restaurants, and allows them to better manage their diners and potentially improve repeat business.
Long-term strategy is a good mix of organic and inorganic growth
As it continues to grow its operations in key markets around the globe, OpenTable has made strategic acquisitions along the way to boost growth. Beginning with the acquisition of UK-based rival toptable.com in 2010, OpenTable announced several other acquisitions including that of Foodspotting, Just Chalo and Rezbook in 2013.
Increasing number of diners making restaurant reservations online
OpenTable's corporate presentation on May 1, 2014, estimated that the company's share among all diners who made a reservation in North America in 2013 was less than 20%. This highlights the low penetration of online restaurant reservations services in the region. As restaurant reservations services are free for diners, and mobile applications have made making reservations even more convenient and easy, the number of diners making online restaurant reservations will continue to grow substantially in the years to come.
Advertising presents a significant revenue potential for OpenTable
We believe that a major revenue opportunity for OpenTable rests in the diner database it has created over the years. The database contains dining-related information volunteered by its registered users (in addition to their geographical location and contact information). This information can be used by OpenTable to send targeted advertisements to diners, which are potential customers for restaurants. OpenTable has only just begun leveraging its database to rope in advertising revenues - something we expect to see more of in future years.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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