OpenTable Eyes $84 on Growth But Stay Watchful on Costs

August 7th, 2011 by Trefis Team
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OpenTable (NASDAQ:OPEN) continues to show impressive growth with over 23.8 million diners seated among its network of 22,600 restaurants in the second quarter. [1] This helped the company ring up $18.3 million in reservation revenues. OpenTable competes with Urbanspoon – owned by IAC/InterActiveCorp (NASDAQ:IACI) – as well as UK-based companies liveRES Ltd and Livebookings Ltd. in the online restaurant reservation market. It has also started giving Groupon (NASDAQ:GRPN) a run for its money by selling third-party restaurants coupons through its website.

We lowered our price estimate for OpenTable from $94.60 to near $84.25 due to higher forecast for its cost base given the acquisition of toptable.com. Our current price estimate is still a 35% premium to the market price.

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Strong North American Growth

The company added more than 1,000 restaurants in North America to its list of customers bringing the tally to 15,560. This means OpenTable now boasts of having more than 50% of all reservation-taking restaurants in North America as its customers.

It is also no surprise that reservation revenues from North America continues to remain the biggest driver of the company’s top-line, with OpenTable seating more than 22 million diners in the region last quarter. We estimate that North America accounts for 75% of its valuation.

But Costs Are on the Rise

OpenTable’s focus on expanding its business internationally has brought along with it increased expenses most notably in the company’s advertising expenses. We wrote about this in detail in our article titled, It’s Becoming More Expensive for OpenTable to Maintain its Lead.

The company’s results reveal that operating costs as well as sales & marketing costs have grown at rates faster than revenue for the first six months of the year. While increasing expenses in itself does not warrant any need to press the panic button, OpenTable will have to keep a closer eye on these numbers.

See our full analysis for OpenTable here

Notes:
  1. OpenTable, Inc. Announces Second Quarter Financial Results, OpenTable Press Releases, Aug 2 2011 [↩]