OpenTable: Slightly Cooled, Still Delicious
Investors didn't like how the earnings they ordered from OpenTable (NAS: OPEN) turned out, so they're sending back last night's quarterly report.
Revenue climbed 53% to $34.3 million, well short of the 57% top-line surge that analysts were projecting. Adjusted earnings more than doubled to $0.33 a share -- comfortably ahead of the $0.27 a share that the pros targeted -- but the damage was already done. When you're valued as richly as shares of OpenTable are, you can't afford to slip on either end of the income statement.
OpenTable's performance looks solid on an absolute level. A meaty European acquisition padded its overseas metrics, so let's focus instead on its flagship North American business. There are now 15,560 restaurants on the OpenTable platform, 27% more than a year ago. OpenTable seated 22.2 million diners during the period, a welcome 47% pop. North American revenue climbed 38% to $29.2 million.
This is exactly the win-win-win scenario that makes OpenTable so compelling for restaurant owners, foodies, and the company itself. When that 47% jump in reservations exceeds the 27% uptick in participating restaurants, it means that the average establishment is attracting more patrons. But when revenue's 38% increase can't keep pace with the surge in reservations, it means that restaurants are paying less per seated diner.
Keeping restaurants on the system is critical, because that keeps upscale diners flocking to OpenTable.com and cracking open the app whenever they need to make a dining reservation.
No one is close to OpenTable's popularity, even though IAC's (NAS: IACI) Urbanspoon is trying to compete with its cheaper Rezbook solution. Replacing OpenTable's elaborate electronic reservations book with an iPad app solution is interesting, but it's hard to attract hungry diners when the hottest restaurants are already entrenched on OpenTable.
Shares of OpenTable were on fire late last year, as the company joined travel deals publisher Travelzoo (NAS: TZOO) and wedding planning website operator XO Group (NYS: XOXO) in hopping on the Groupon bandwagon by selling prepaid deals in their respective specialties.
Valuations got frothy, and investors have become restless waiting for those couponing initiatives to pay off. Shares of Travelzoo and OpenTable have now sold off after their latest quarterly reports.
Don't give up on OpenTable just yet. It continues to post strong growth and widening margins, and one has to wonder what the results will look like once the economy improves to the point where folks hit up upscale restaurants more often.
Fickle investors ought to know that some dishes are perfectly good, even when they're only lukewarm.
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