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Investment Overview for OpenTable (NASDAQ:OPEN)
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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:
Reservations
- 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 5,709 in 2012. 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 10% as opposed to our current estimate of 15%, 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 12% to the Trefis price estimate
- Reservation Revenue per North American Diner: OpenTable has seen an increase in average revenue per diner from 68 cents in 2007 to 70 cents in 2012. This is primarily because more diners have been using OpenTable's website to make reservations as opposed to the 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.
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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 27,000 restaurants, and seats 10 million diners each month. 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 and a reservation fee charged per diner seated using the company's system.
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.
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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 20,000 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.
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Increasing number of diners making restaurant reservations online
A study conducted by American Express in 2009 concluded that 62% of diners researched online before making a reservation at a restaurant, and almost 80% of these intended to book online. These numbers have undoubtedly increased considerably since then. 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.
Trefis Forecast Rationale for Number of Subscribing North American Restaurants
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The ${forecast} is the number of North American reservation-taking restaurants which have the OpenTable system installed onsite. These include core OpenTable ERB customers who pay a monthly subscription fee for this service, as well as OpenTable Connect customers who do not pay a monthly subscription fee.
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The number of OpenTable’s restaurant customers in North America has consistently risen from 7,391 restaurants at the end of 2007 to 19,801 restaurants at the end of 2012.
We expect the number of subscribing restaurants to increase steadily to well over 30,000 by the end of the Trefis forecast period.
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Trefis considered the following factors for its forecast:
- Total addressable market
- OpenTable estimated the number of full service reservation taking restaurants in North America at around 30,000 in 2009. Assuming the total number of restaurants has increased at 1-2% annually over the past three years in the U.S., this implies that OpenTable already has more than 50% share of its addressable market (reservation-taking restaurants. Given its market leadership position and large user base, we expect additional restaurants to sign on.
- Increasing popularity among diners
- The number of diners making reservations using OpenTable has increased substantially over the years with almost 5 million diners using OpenTable to make reservations at restaurants every month
- OpenTable has increased its online presence significantly through its partnership with Google, Menupages, TripAdvisor, Yahoo!, Yelp and Zagat, which represent a significant share of the online restaurant business
- Along with the added convenience of the OpenTable iPhone application, this has made it imperative for restaurants to not just have an online presence via a website, but also incorporate online reservation systems.
- Besides the advantages of improved table allocation and ability to recognize repeat customers, the OpenTable reservation system is fast becoming essential for restaurants to remain competitive.
- OpenTable Connect targets restaurants that are primarily walk-in, but take some reservations
- In order to appeal to a larger customer base, OpenTable launched its Connect services in 2010
- The pay-per-reservation package provided by OpenTable Connect should also help attract more restaurants, adding to the subscriber base
Back to Company OverviewHow 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.
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