OpenTable (NASDAQ:OPEN) is a leading provider of free and real-time online restaurant reservations for diners as well as reservation and guest management solutions for restaurants. Recently, it also started selling third-party restaurant group-buying coupons through its website. Competitors in online restaurant reservations include Urbanspoon, owned by IAC/InterActiveCorp (NASDAQ:IACI), and the UK-based companies liveRES Ltd and Livebookings Ltd. OpenTable competes directly with Groupon and Living Social in the online group-buying industry.
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We recently launched coverage on OpenTable with an $81.59 price estimate for the company’s stock.
We’ve broken down our analysis of OpenTable into five main business segments:
Online Restaurant Reservation Industry
Reservation-taking full-service restaurants have increasingly adopted online booking options over the past few years. This change can be attributed to the value seen by restaurants in making reservations more convenient to diners. This improves their online presence and consequently gives them access to a larger number of potential diners. Another advantage of using online reservation solutions for restaurants is the ease in providing customized service to diners. As diner history is recorded, data about their preferences is used to improve their overall experience at the restaurant. This leads to more repeat diners for restaurants, and also brings in more diners through word-of-mouth publicity.
All online restaurant reservation providers offer their services to diners for free. They generate revenue through subscription fees and per-diner reservation fees from the restaurants they list on their website.
Reservation fees paid by restaurants contribute the most to OpenTable’s equity value, contributing more than 52% to our estimated stock value for the company. As the biggest player in the online restaurant reservation industry in North America, OpenTable has a significant competitive advantage with more than 13,000 of the estimated 30,000 reservation-taking full-service restaurants in North America as its customers. It has also made considerable investments in the last few years to expand its operations globally, and has a significant presence in the UK, Germany and Japan.
OpenTable currently charges restaurants $1 per diner seated through the OpenTable website, and 25¢ per diner seated through the restaurant’s own website. The increasing popularity of the OpenTable.com website among diners and the added advantage of being able to make reservations using the OpenTable application for mobile phones will boost the number of diners booking tables on OpenTable in the future.
With the number of diners making reservations directly using the OpenTable website expected to grow at a faster rate than those making reservations using restaurant websites, the reservation revenue generated by OpenTable per diner seated is forecasted to increase in the years to come.