Weak economy weighs on OpenTable

Lower consumer spending could explain the reduced number of diners using the company's online reservation system.

By Trefis Nov 8, 2011 1:00PM
OpenTable (OPEN) increased its North American customer base to 16,237 from 15,560 in the third quarter, but its profit dropped by more than 35%.

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.

Post continues below.

In light of the economic slowdown, we have updated our price estimate for OpenTable's stock from $84 to $65, which is still about 50% above the current market price. The more than 20% reduction in our price estimate can largely be attributed to:
  • 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.

See our full analysis for OpenTable here

Number of Diners per North American Restaurant

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 SGA Expenses as Percent of Gross ProfitAnd costs continued to rise

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.


Tags: OPEN


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