Weak economy weighs on OpenTable
Lower consumer spending could explain the reduced number of diners using the company's online reservation system.
The online restaurant-reservations site announced its quarterly results last week. While the company's operating costs continued to grow briskly, the weak economic environment clearly led to lower consumer spending. That could explain the reduction in the number of diners using OpenTable's online reservation system.
The announced results confirm the short-term concerns about OpenTable's business we expressed in our article OpenTable Q3 earnings next week: What we're chewing on.
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- 1) An increase in our estimates for OpenTable's selling, general & administrative (SG&A) expenses over our forecast period. The company's strategy of increasing international presence has already demonstrated faster growth in costs -- largely marketing expenses -- than revenues.
- 2) A decrease in our estimates for number of diners per restaurant, triggered by the expected decrease in consumer spending over the next few quarters.
OpenTable's number of diners seated dipped for the first time
OpenTable seated about 23.6 million diners in the third quarter, a small reduction from the 23.8 million diners it seated in the previous quarter.
While the number of diners seated by OpenTable at restaurants in the U.K., Germany and Japan increased marginally from 1.6 million to 1.8 million diners, the mood across North America during the period was captured by the fact that the number of diners seated in North American restaurants for the quarter decreased from 22.2 million to 21.8 million.
This is the first time OpenTable has seen a decrease in the number of diners it seated in its North American stronghold.
OpenTable's expenses continued to grow rapidly with the company spending more in both the saturating North American market as well as the recently entered international markets.
There has been a marked increase in the company's selling, general & administrative (SG&A) expenses over the period. While sales & marketing expenses rose from $6.4 million to $7.5 million in this quarter, the general & administrative costs jumped up by nearly 50% -- from $5.1 million in Q2 to $7.4 million in Q3.
While we recognize that a rapidly growing company must spend in order to sustain its growth, if OpenTable's increased SG&A spend keeps outpacing revenue growth then margins are going to take a serious hit.
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