Earlier this week, the online restaurant reservation company OpenTable (NASDAQ:OPEN), announced its decision to acquire Foodspotting, in an all-cash deal worth $10 million, to add “more visually compelling content” about restaurants both, on its website as well as its own mobile phone app.  Foodspotting is a smartphone app that provides users with photos of food taken at various restaurants – allowing them to zero in on a particular restaurant based on the photo (and hence the food) that appeals to them the most. OpenTable already offers its restaurant reservation service through Foodspotting, but it intends to attract more users from the rapidly growing community of diners, who rely heavily on visuals in addition to reviews of restaurants. No doubt, OpenTable would also be looking to pitch the newly added feature to restaurants as a better channel to showcase themselves online, adding new restaurant customers as well as advertising revenues along the way.
We currently maintain a $52 price estimate for OpenTable’s stock, which is slightly below the current market price. We will make changes to this estimate once OpenTable announces its performance figures for FY2012 on Feb 7.
OpenTable has been having a hard time in recent quarters on multiple fronts. Firstly, the sluggish economy has made people wary of their spending habits because of which the number of diners at full-service restaurants has remained low, resulting in a notable reduction in the growth rate of diners seated by OpenTable (see What Is OpenTable’s Downside From Slowing Diner Growth?). Secondly, OpenTable has been consistently adding more restaurant customers to its OpenTable Connect offering (which does not charge a monthly subscription fee) off late than to its full-function ERB offering, resulting in lower per-restaurant revenues for the company. And thirdly, its international expansion plans have performed nowhere close to expectations for quite some time now (see OpenTable Would Be Worth $70 If You Ignored Its International Business).
With the process of adding new restaurants in a saturating market only becoming more difficult, OpenTable is now focusing on the next best option to continue growing its revenue – driving faster growth in its diner base, and this is where Foodspotting comes in. The mobile application’s offering will be better integrated across OpenTable’s website and app to allow diners to enjoy the advantages of picking restaurants based on cuisines while being able to book their tables conveniently. This should help improve the rate of growth of diners who use OpenTable to make restaurant reservations online.
We capture the number of diners OpenTable seats each year through our estimate for the diners seated by it per North American restaurant, as shown in the chart above. You can make changes to this chart to see how a faster growth in diner base will help OpenTable’s share value.Notes: