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OpenTable, Inc. (OPEN)

Barclays Internet Connect Conference

March 06, 2013 3:15 pm ET

Executives

I. Duncan Robertson - Chief Financial Officer, Principal Accounting Officer and Secretary

Analysts

Mark May - Barclays Capital, Research Division

Presentation

Mark May - Barclays Capital, Research Division

Good afternoon. Thanks, everyone, for joining. I'm Mark May, I'm one of the internet analysts here at Barclays. And it's my pleasure and I appreciate Duncan Robertson, the Chief Financial Officer of OpenTable, for joining us today. Thank you.

Maybe for the few of us in the audience that aren't that familiar with the OpenTable story, if you wouldn't mind, maybe just kicking us off with a brief introduction of the business and maybe a little bit about your background and your role at the company and then we'll get started.

I. Duncan Robertson

Yes, absolutely. Well, thanks for the opportunity to be here. As Mark said, I'm Duncan Robertson, CFO of OpenTable. I've been with the company for just over 1.5 years. And I think the company itself often doesn't require that much introduction to consumers, but let me give you a brief overview of what we do. We are the world's leading provider of online restaurant reservations. And what that means is we're connecting a network of about 27,500 restaurants with the world's most vibrant community of diners visiting our platform which, when I say platform, means our desktop site and our apps and our mobile site. And what that resulted in, in Q4, was we seated approximately 33 million diners in our restaurants across North America, which is Mexico -- for us, Mexico, the U.S. and Canada. And then we've taken the same model that we followed in North America and we've extended that into 3 countries outside of North America, which is the U.K., Germany and Japan. And really following the same playbook, which is aggregate the best inventory, at the best restaurants in each of the cities in those countries. In Japan, we're really just focused on Tokyo. And over time, what happens is the inventory of restaurants builds up to be something that's appealing and interesting to consumers, and so that builds the awareness of our destination site. In all countries, except the U.K., that's branded as OpenTable. In the U.K., we've branded it as toptable, which was an acquisition we completed in late 2010. And as a result, we get this very nice network effect at the local level between the restaurants that we have on our network and the diners that are using our platform to make reservations and explore and decide where to dine through our network.

Mark May - Barclays Capital, Research Division

Great, that's good. Maybe we can talk first on the paying restaurant customer side of the business; the supply side, if you will. Despite the fact that the company is around 50% penetrated in the U.S. of ERB customers, ERB restaurants, and I think 70-plus in some cities or regions, the net restaurant additions remain very solid. So maybe you can give us a sense of why that is. Maybe in the context of how you're doing in some of the Tier 1 or larger markets, where you're at in some of the smaller markets and how we should think about that side of your business over a 3- to 5-year time frame.

I. Duncan Robertson

Sure. So the supply side or the restaurant side of the network, as you mentioned, has continued to grow quite nicely. I think on a sequential basis in North America in Q4, just to give you some context of the numbers, we added I think 826 restaurants. The install base grew by 826. And that was up from I think 602 in Q3. So as you say, it continues to grow quite nicely. And that's really developed by a local sales team that we have across North America. I think at the end of December, we had about 122 people in our sales and marketing team, which is the part of the company that continues to bring new restaurants into the network. The ability to add restaurants to the network via our sales team is really twofold, and it differs slightly between the more penetrated or the old -- some of the larger, more penetrated markets that you referenced and the less-penetrated markets. And the same model that I'm going to describe in North America applies to our international businesses, as well. Only in many of those cases, they're even less penetrated than some of the cities and metros in North America. So in an established well-known market, and when I say well-known, I mean well-known amongst the restaurant community and the diner community. Obviously, there's 2 factors that play into adding restaurants. One is we've developed what is arguably the best product for a restaurant or a restaurateur to think about how they would run their business in any way other than a pen and paper. And obviously, we've got thousands of restaurants now that have decided that it is indeed a better way to manage their business. And what I mean by that is really for them to understand how to provide a better level of hospitality and use the hospitality services that we've developed and embedded in our product to offer services that the dining and the table management and the wait staff management and the e-mail, the diner e-mail marketing programs that they can, out of the product. In an established market, they obviously understand that OpenTable is a very powerful demand creation tool or product for their business as well, because so many people in cities like New York or San Francisco or Boston are visiting our platform to make dining decisions, and restaurants -- and restaurateurs in those cities understand that being a part of this vibrant network of diners benefits them from a demand creation perspective. In newer cities or less penetrated markets, obviously, our sales team can't rely to the same extent on the demand side of the appeal of our product. So in those cases, our team is really selling the product on the merits of running the business on our ERB, Electronic Reservation Book, platform versus something else, which in 99% of the cases is running on a pen and paper book. And I think we've developed the product to such a stage we're on version -- at currently on version 10 of the ERB. So if you think about it, that's 12 years or 13 years of product development that's gone into what restaurants use to manage, not only their online reservations, but their telephone reservations, their walk-in reservations, the entire side of the hospitality part of that business. And certainly, we have high-profile and very valued restaurateur customers, such as Thomas Keller and Gordon Ramsay, who've selected OpenTable as the product that they're going to run their business on for the merits of the product as it stands.

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