Is It Time to Check Into OpenTable Yet?


OpenTable ($OPEN) is a classic example of a broken growth stock.

The stock started off with a bang and went on a serious tear, racking up 200% gains from January 2010 to March 2011.

OpenTable provides online restaurant reservation services where customers can easily book and view tables at local eateries.  The service is completely free for restaurant goers, but the company collects a variety of fees from each affiliated restaurant.

According to New York Times, OpenTable costs a restaurant roughly $650 on average to get set up.  Once the restaurant is setup, they pay an average of $270 a month for the terminals and table-management software.  For each reservation that is made, OpenTable receives $1 per patron.

Sounds like a pretty nice business model, right?

The company has found a great niche and has limited competition in their sector, however, some self-inflicted wounds have turned $OPEN into a broken growth stock rather quickly.

4/29/11 – OpenTable CEO Jeffrey Jordan resigns abruptly 

8/2/11 - OpenTable Q2 rev misses, appoints CFO (Reuters)

11/2/11 - OpenTable Q3 Revenue Prompts Analysts To Slash Targets; Shares Plunge (Forbes)

So OpenTable’s CEO abruptly resigned and they missed on revenues for 2 quarters in a row.  Wall Street analysts downgraded the stock following their poor earnings reports.  Not good.  As you can see from the chart above, these negative catalysts have definitely weighed on $OPEN shares.

Clearly, the company has gone through some serious struggles, which isn’t atypical for a publicly-traded technology startup trying to find their way in a completely new sector.

Even though $OPEN shares are down 53% Year-to-Date, is there still a light at the end of the tunnel?  I tend to think so.

 

In order to understand the potential opportunity here, I decided to compare $OPEN ‘s fundamentals against another newcomer in the tech/restaurant sector, Yelp Inc.  When you look at each company’s financials side-by-side relative to their valuation, it’s a real eye opener.

Even though $OPEN has endured their fair share of struggles, the company still grew their revenues 50% year-over-year and hasn’t posted a loss since 2008.  Yelp is valued at more than $1.2B more than $OPEN, yet the company is generating less revenues and is operating at a loss.

Additionally, I think OpenTable could be a potential acquisition target for a company like Google, which I wrote about earlier this summer.  Google could integrate OpenTable into their Google Offers platform or in their Google Maps program. Imagine if you could search for a restaurant on your iPhone using Google Maps and reserve a table instantly? I definitely think there is a lot of value there.

So is it time to check into $OPEN yet?

I still need to do some additional research on the company before I initiate a position, but from a valuation basis it certainly looks appealing.  $OPEN is definitely one to keep on your radar.

Disclosure: No position in $OPEN 


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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