OpenTable (NASDAQ:OPEN) announced the acquisition of mobile technology company JustChalo on Thursday, June 13, in a move that falls in line with the online restaurant reservation giant’s plans to grow the number of diners using its services by focusing on its mobile offerings.  The $11 million cash-and-stock deal will be OpenTable’s second mobile-focused acquisition this year after its acquisition of Foodspotting in January, and without further details on the deal, looks like it’s a talent grab for mobile developers and technology. (see OpenTable Looks To Boost Diner Growth With Foodspotting Acquisition).
Diners are increasingly switching to the use of mobile applications to make restaurant reservations – a trend that has resulted in phenomenal growth in number of diners seated by OpenTable through its mobile apps since it began offering the service in late 2008.
The acquisition will result in a one-time expense of just under a million dollars for OpenTable this year and will marginally increase the company’s recurring costs due to the addition of JustChalo’s team to the company’s mobile development group. But we believe that the potential growth in the diner base that this deal promises will more than make up for the higher costs.
Evident from the chart above, the revenue from reservations contributes nearly two-thirds of OpenTable’s total share value. The number of diners switching to the OpenTable mobile app for making restaurant reservations has been exponential in the recent past – something that also helps OpenTable rope in more revenues as it charges its restaurant customers a dollar per diner seated through the app compared to 25 cents for a diner seated through the restaurant’s own website.
To put things in perspective, OpenTable has seated about 60 million diners through its mobile apps since they were launched in November 2008. That’s about 17% of the nearly 350 million diners that OpenTable seated at restaurants across North America over the same time period (based on quarterly data released by the company). But when it comes to just the first quarter of this year, mobile-based reservations accounted for 36% of the 34 million diners OpenTable seated over the period (see Mobile Offerings Boost OpenTable’s Earnings; $56 Fair Value). And this trend is only expected to continue. It would hardly be a surprise if by the end of next year OpenTable reports more reservations through its mobile apps than through its web-based options.
Keeping the increasing preference of services provided by smartphone apps among users, it really makes sense for OpenTable to stock up its arsenal of mobile phone offerings – something that it has done quite religiously given the two acquisitions announced within a gap of six months.
The increased push on mobile apps should help OpenTable register higher diner growth for its operations across North America. You can understand how an increase in diners helps the company’s share value by making changes to the chart below.
We are in the process of updating our $56 price estimate for OpenTable’s stock, to factor in the impact of this latest acquisition.Notes: