OpenTable(OPEN) has come a long way since Chuck Templeton envisioned the idea in 1998 after observing the difficulty his wife faced while trying to book a dinner reservation by phone. Today, it is the leading provider of free and real-time online restaurant reservations for users looking to book reservations online as well as a reservation and guest management solution for restaurants. The company is comfortably ahead of its competitors like Urbanspoon, owned by IAC/InterActiveCorp and UK-based companies liveRES Ltd and Livebookings Ltd. It also seems to have hit the right note with its decision to take Groupon head-on by selling third-party restaurants coupons through its website.
We currently maintain a $94.90 price estimate for OpenTable, which is about 10% below the stock's market price.
OpenTable Seems to be Attracting New Diners at a Phenomenal Rate...
OpenTable seated 50 million diners in 2007 using its online reservation system. They reached their 100 million diners milestone around May 2009, doubling the number of diners seated in about 20 months.
OpenTable added its next 50 million reservations in exactly a year, with the tally reaching 150 million users in May 2010. And recently, OpenTable announced that it had breached the 200 million users mark. This means that the last 50 million diners were added in a span of less than 10 months.
The time taken by OpenTable to incrementally add 50 million diners can be summarized as follows:
This suggests that, while OpenTable is already the single largest provider of online restaurant reservation services, it is also witnessing almost 40% annual growth in the number of diners it seats. A similar phenomenon, albeit at a considerably slower rate, was witnessed when online airline reservation services and online hotel reservations services began to pick up steam in the early 2000s.
It is also interesting to note that OpenTable's mobile applications, which were launched in 2009, have already resulted in more than 5 million reservations through mobile phones.
... Which Would Explain the High Stock Price
Our analysis shows that nearly 60% of OpenTable's stock value comes from the per diner reservation revenues that OpenTable charges to its partner restaurants. Since the per diner fees should remain more or less constant in the years to come, it will be the number of diners (measured above on a per restaurant basis) driving these revenues.
Given OpenTable's stronghold on the North American restaurant industry, we estimate that the average number of diners seated annually by OpenTable per North American restaurant will double from its current figure of around 4,500 (to over 9,000) during the next five years. You can drag the trend line in the interactive chart above to see how changes to the diners per restaurant metric affect OpenTable's stock value.Trefis Wordpress Plugin.