OpenTable's Stock Looks Pricey with Lower Reservation Fees on the Horizon
may have to seriously think about reducing the reservation fee it charges restaurants for each diner seated using the OpenTable system. As the leading provider of free and real-time online restaurant reservations, the company is comfortably ahead of its competitors like Urbanspoon, owned by IAC/InterActiveCorp, and UK-based companies liveRES Ltd and Livebookings Ltd.
We currently maintain a $94.90 price estimate for OpenTable, at a discount of roughly 10% to market price.
Business Has Been Booming
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 (largely due to the acquisition of toptable.com), 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. Data about per diner revenues and total number of diners seated provided by the company in its annual reports implies that the growth in the number of customers using the OpenTable website is significantly higher than those using restaurant websites.
And 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 only boost the number of diners booking tables on OpenTable in the future.
Some Restaurants Objecting to Fees
Many restaurants believe that OpenTable's services are quite expensive and some have also voiced this opinion online. The biggest source of contention is the 25¢ per diner which OpenTable charges for reservations through the restaurant's website. Restaurants argue that OpenTable does not warrant the addition fees for those reservations – as restaurants already pay a per month subscription fee for the online-reservation software from OpenTable.
...Opening up Room for Competition
Virtubook, a recent competitor in the online restaurant-reservation space, claims to provide the same services as OpenTable. It also claims of an easier interface. But it seems to nail the primary complaint from restaurants by saying, "We do not charge you any extra for bookings made online via your website, all costs are included within your monthly subscription fee."
While Urbanspoon currently charges restaurants in the same manner as OpenTable, it may join-in with cost cuts too – forcing OpenTable to follow suit.
What Lower Fees Would Mean for OpenTable
OpenTable currently earns about 70¢ per reservation in North America based on the proportion of diners who reserve using OpenTable.com and restaurant websites.
We currently estimate that this value would increase in the years to come – assuming there is no change in the fees charged. However, if the 25¢ fee is removed, this would reduce the per diner average revenue to just above 60¢. This shaves off nearly 10% of the company's value estimated by on this move alone implying a price estimate of around $86. This does not include a lower growth rate in bookings due to competition which could lead to additional downside to our estimates.
See our full analysis for OpenTable
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