Like a popular new restaurant,OpenTable (
) enjoyed a strong two-year run from the time it went public in
May 2009. Then the tables turned.
OpenTable is the top provider of online restaurant reservation
services. At quarter's end, it had ties to 18,975 restaurants in
North America and 7,385 internationally, mostly in the United
From its IPO price of 24.50, the stock hit a high of 118
nearly two years later while logging double-digit revenue growth
and even higher profit gains.
But then the troubles started, sending shares to under 32 by
the end of 2011. They've moved up more recently to around 52 as
mobile reservations have shot up, but are still 56% off their
What happened? First, like a restaurant that had its star chef
walk out, OpenTable's chief executive, Jeff Jordan, left
unexpectedly in May 2011 to a venture capital firm.
Later, the company shuttered its discount deal program known
as Spotlight, which never gained much traction.
More troubling, OpenTable's international business, led by the
U.K., grew slower than expected, even with the acquisition of
Britain's leading online reservation site, Toptable, under its
In the second half of last year, its core U.S. business
started to slow as overall restaurant traffic turned sluggish in
the off-again economy.
"Overall revenue growth in the U.S. market slowed from the
40%-to-50% range to 20% most recently," said Raymond James
analyst Aaron Kessler.
But that's still double-digit growth, not bad when you
consider it's on a larger base.
Hurricane Sandy ate into fourth-quarter revenue by about
$500,000, management estimated, as restaurants in the storm's
path were forced to close.
"The good thing is, they are still growing," Kessler said.
Analysts expect 2012 revenue to grow 16% over '11. Better yet,
earnings are seen rising 30%.
The company reports year-end results in early February.
"There is still leverage in this model," Kessler said. And
that, he added, "is driving faster earnings growth relative to
Diners can reserve tables for free through OpenTable's website
and various mobile apps and partners. For each seat it fills this
way, OpenTable gets paid $1 by restaurants. (OpenTable gets 25
cents a seat if a customer makes a reservation on a restaurant
client's own website.)
"Reservations are typically for two or four people so we
average about three people per reservation, so we make about $3
per reservation," said CEO Matthew Roberts.
In the third quarter, reservation fees generated 55% of the
company's revenue. The rest came mostly from monthly subscription
In the third quarter, the number of seated diners in North
America rose 26% vs. the earlier year to 27.8 million. Including
international, seated diners totaled 29.7 million. Both were
slowdowns from the prior two quarters but above the year-earlier
quarter's 23.6 million total.
Revenue rose 16% to $39.7 million. Adjusted earnings surged
40% to 42 cents a share, beating analyst estimates by 6
How can OpenTable keep growing when restaurant industry
traffic growth is virtually flat?
It's simple, says Roberts, who stepped up to the plate after
former CEO Jordan left. Roberts had been chief financial officer
for eight years.
"Even if people aren't going out to eat more, they are using
our service more," Roberts said. "There's a general shift from
phone reservations to online reservations."
And mobile is the fastest component of online reservations.
The company's mobile bookings jumped 170% in the third quarter
vs. the prior year and made up 32% of all North American
"Nonmobile isn't growing anymore," Kessler said. "Most of
their growth at this point is from mobile."
OpenTable aims to tap into mobile more. It got off to a good
start in the fall as one of the first companies to launch an app
customized forApple 's (
) new iPhone. And at a launch event, Apple showed how OpenTable
is integrated into Apple's Siri personal assistant app.
In October, OpenTable launched a free service for restaurant
customers that creates mobile-friendly websites for them.
"Only 10% of our restaurants have a mobile site optimized for
viewing on a phone," Roberts said. "There's a big opportunity for
them to present a compelling user experience to customers."
There's more to come. Like online dating sites, OpenTable is
working to tap into its huge database to help diners "find
perfect matches," Roberts said.
"We hired a fantastic chief technology officer who was the CTO
at eHarmony," Roberts said.
Tapping into social media such asFacebook (
) will be a key goal, Roberts says. It's "laid the foundation" by
allowing customers to use Facebook to access OpenTable's website
and mobile apps.
"We think there is an opportunity to add value for diners to
see which restaurants their friends have eaten at and what their
friends think about that restaurant, using Facebook's social
graph data," Roberts said. "We're working on that now."
All these initiatives will drive growth in seated diners, he
With its already sizable restaurant-customer footprint,
analysts see diner growth as especially key.
"They were focused too much on the blocking and tackling of
adding new restaurants and not focused enough on finding ways of
improving seated diner growth," said Piper Jaffray analyst
Michael Olson. "They are taking steps to remedy that."
OpenTable already has about 50% share of reservation-taking
restaurants in the U.S., "so it's more important to drive strong
diner growth," Kessler added.
Seated diner growth in the company's core U.S. market slowed
last year, Kessler says. He says it grew 43% in 2011 and about
27% in '12.
One reason may be relatively low awareness. "In our survey,
only 40% of consumers have heard of OpenTable," he said.
He says OpenTable spends "very little" on advertising and
"there is debate on whether they should spend more."
Meanwhile, the company is also focused on driving growth in
three fledgling international markets: the U.K., Germany and
"We're early in North America and even earlier
internationally," Roberts said.