Spotlight Living Up to the Hype for OpenTable

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OpenTable ( OPEN ) seems to have hit the right note with its decision to sell third-party restaurants coupons through its website. The company's Spotlight program has made it a direct competitor to Groupon - the first company to fully demonstrate the effectiveness of group-based online discounts. And restaurants using Spotlight seem to have plenty of positives to report. Notably, 90% of restaurants participating in the program recommend it to other restaurants. Already the leading provider of free and real-time online restaurant reservations, OpenTable is comfortably ahead of its competitors in an industry that also includes Urbanspoon, owned by IAC/InterActiveCorp ( IACI ), and UK-based companies liveRES Ltd and Livebookings Ltd.

We currently maintain a $94.90 price estimate for OpenTable , which is about 10-15% below the stock's market price.

Spotlight on Spotlight

Spotlight is a deep discount service similar to Groupon that OpenTable started in August 2010. OpenTable launched the Spotlight service under the assumption that full service restaurant owners might prefer OpenTable over Groupon for selling their discount coupons, as it addresses their requirement for a more focused target audience.

And the assumption was recently validated by a survey of restaurant partners conducted by OpenTable. While 85% of the restaurants were satisfied with the Spotlight feature, 90%  suggested that they would recommend Spotlight to other restaurants. Also, they noted that 40% of diners that came through Spotlight spent more than typical diners.

What this Means to OpenTable

OpenTable normally sells Spotlight coupons priced at $25 each, and retains half of the revenue generated by the sale of these coupons. With approximately 600 people on an average buying coupons for a particular deal, and about 200 Spotlight deals hosted by OpenTable in 2010, this represents revenue of $1.5 million. And this is within months of launching the service.

The annual number of deals, which are available for a week at a time and displayed by region, could increase towards 4,000 over the next 5 years by our estimates. This represents annual revenue of $30 million assuming static per coupon revenues.

See our complete analysis for OpenTable stock



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: IACI , OPEN

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