Is OpenTable pullback a buying opportunity?

The stock is up 70% in the last year, however it has recently pulled back off the recent 52-week highs.

By Stock Traders Daily Oct 1, 2013 11:40AM

Restaurant © Medioimages/Photodisc/Getty ImagesBy Neal Rau, Stock Traders Daily.

 

OpenTable (OPEN), the world's leading provider of online restaurant reservations, has seated more than 12 million diners per month via online bookings across approximately 28,000 restaurants. The company has also generated more than 20 million reviews from diners, establishing itself as one of the largest sources for restaurant reviews. 

 

The stock is up 70% in the last year, however it has recently pulled back off the recent 52-week highs. Is this pullback a buying opportunity?

 

Headquartered in San Francisco, Calif., OpenTable’s service is available throughout the U.S., as well as in Canada, Germany, Japan, Mexico and the UK. The company has a unique business model, as its revenues come mainly from online reservations and subscriptions. Restaurants that use its Electronic Reservation Book pay a one-time installation fee for installation and training, as well as a monthly subscription charge of $249 per month.

 

OpenTable reported in August that its second-quarter profit increased 46%, beating market expectations. However, the company gave weaker guidance for Q3 and cut its forecast for the rest of the year. While 2Q US revenues were in line, international revenues were weaker than expected on changes to promotional pricing. The stock fell sharply when the company announced the weaker guidance in early August, but managed to rally to yearly highs less than a month later. Currently, the stock is trading about 8% off those highs.

 

Last month, Facebook Inc (FB) announced that it entered into a partnership with OpenTable, which allow users to book restaurant reservations from the Facebook mobile app. Facebook’s gigantic user base could boost OpenTable users quickly and help the company deal with the growing competition from the likes of Groupon (GRPN) and Yelp (YELP) in the online restaurant reservation industry.

 

Perhaps the most important aspect of the FB partnership is the potential from mobile. Matt Roberts, president and CEO of OpenTable, said during the most recent conference call that 38% of the company’s seated diners now originate from smartphones and tablets, and mobile remains a strategic focus for the company, which is continuing to invest in mobile product optimization and adoption.

 

OpenTable benefited from a partnership with Yelp, which was established back in 2010. The partnership allows Yelp visitors make a restaurant reservation directly from the business page of customers. It appeals to restaurant owners because they can drive people to their business page and let them reserve a table without leaving the site.

 

Although Yelp bought SeatMe, another restaurant-reservation startup, the company said it would not affect its relationship with OpenTable. Yelp needed to open up the reservation space for smaller restaurants and nightlife establishments that couldn't afford a high-end solution like OpenTable.  

 

OpenTable still stands to benefit from its more than 600 partnerships with companies like TripAdvisor, Google and Yahoo. The company also has room to expand internationally, as it needs to compete with the UK Company Livebookings, and Barcelona based Restalo, which is the leader in online restaurant reservations in Italy and Spain, where OpenTable is yet to operate.

 

As long as OpenTable continues to invest in mobile product optimization and keeps adding partners both in the U.S. and abroad, the stock has upside, but expectations for international revenue may have been too high, and the recent adjustments could be baked into the stock now.

 

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