Five stocks on my watch list broke out to new highs last week (the most bullish thing a stock can do is hit new highs) and today I want to tell you about one of them.
It’s OpenTable (OPEN), a California company that provides the world’s leading computerized restaurant reservation service. Started in San Francisco in 1998, OpenTable served more than 11,487 restaurants in the U.S. as of March 31, as well as hundreds more in Canada, Japan, Mexico and parts of Europe.
The service is free to diners; restaurants pay for the service. I’ve been a user for years, and I think it’s terrific.
And I’m not alone. As of March 31, the installed base of restaurants was up 20% from the year before, while the number of seated diners surged 43%. First quarter revenues were $21.3 million, while earnings were up 180% to $0.14 per share.
OpenTable is affiliated with AOL CityGuide, Chicago Tribune’s metromix.com, Citysearch.com, DiRoNa, Los Angeles Times’ calendarlive.com, NYC & Company, Time Out New York, San Francisco Chronicle’s sfgate.com, washingtonpost.com, Yahoo! and Yelp. In short, it was the first in the industry, and it’s the leader by far.
But there is competition coming, and the #1 threat appears to be Urbanspoon, whose free online restaurant guide and hip, independent attitude has helped it grab a chunk of Zagat’s restaurant guide business. Interestingly, Urbanspoon is really a division of IAC/InterActiveCorp, the Barry Diller-led conglomerate that has spun off Home Shopping Network and Ticketmaster and that currently includes Ask.com, Match.com, Vimeo and much more.
Though it can’t be verified, and it may be changing, it appears Open Table charges a $600-$700 start-up fee for each restaurant and then an average of $270 per month, plus $1 per diner seated, and 25 cents per head for reservations from the restaurant’s own website.
Urbanspoon’s new service is called RezBook. Its software is free; the only start-up cost is one iPad ($499-$829), bringing the benefit that restaurant employees aren’t tethered to a desk … and the risk that the iPad will “disappear.” After that, costs are just $99 a month plus $1 for each diner seated.
Looking at dollars alone, RezBook is more attractive to restaurants … but only if diners use it. RezBook has rolled out in Seattle and L.A and is now moving into New York City. If the service gains market share, the most likely result would be price cuts by OpenTable.
But I’m not particularly worried about that, and here’s why. The stock (OPEN) is hitting new highs! This tells me that people much closer to the company than me are voting with their dollars, and they continue to like the company’s prospects.
I like the market opportunity. I like OpenTable’s leadership position. I like the profitability of the business model. And I like that fact that this is a young stock. It only came public in May of 2009, so lots of investors are still unaware of it … which means there are more potential buyers than sellers. Second quarter results will be released on August 3, and I have no doubt they’ll be excellent. Analysts are expecting $0.52 per share.
OpenTable was first recommended in Cabot Market Letter back on June 16, when it was trading at 43.
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