OpenTable trades higher on Morgan Stanley stake

Shares of the restaurant-reservations site rose Friday, but is it enough to reinvigorate the stock?

By Benzinga Nov 4, 2011 6:15PM

By Louis Bedigian, Benzinga Staff Writer

OpenTable (OPEN) closed up slightly Friday to $41.88 on news that Morgan Stanley had taken a 5.9% passive stake in the company.

This is good news for the restaurant-reservations site, which has been struggling (and failing) to maintain its share price over the past few months. 

After achieving an all-time high of $115.62 on Apr. 25 of this year, OpenTable began to drop faster and more sharply than a Disney World (DIS) roller coaster. Unfortunately, the ride never seemed to stop. 

Post continues below.

By June 20, OpenTable had lost more than 30% of its value, trading at $73.99. While shares began to pick up shortly after that (rising all the way to $89.56 in July), the stock would later continue its descent, dropping below $58 in August, then below $44 by September. On Wednesday, the stock had dropped to $38.27.

Friday's pickup provides a much-needed boost for the company, which made its public debut in May 2009. Rising well above its offering price of $20, OpenTable held steady during its initial four months of trading. From then on, the company began to ascend. With every decline, the company only seemed to come back even stronger.

That strength seems to have dwindled now, causing many analysts to downgrade or reduce price targets on OpenTable. Oppenheimer was particularly cautious, reducing its target to $54 from $93.

Oppenheimer analysts attributed the reduction to slowing diner growth, the economy, maturing U.S. restaurant additions and per-diner revenue volatility.

"However, we believe OPEN still has plenty of growth ahead," the analysts added, "as we continue to view its business as a natural monopoly, where the network effect should drive very high market share, as compared to 42% and 7%, U.S. and international share today, respectively.”

Bank of America downgraded the stock to neutral from buy:

We believe the stock will be range bound (an already large short interest may limit downside) as the Street digests 3Q results including: 1) lower seated diner growth trends; 2) the cancelation of Spotlight; 3) limited near term benefits from TopTable integration; 4) commentary on softer industry trends in October vs. September, but little clarity on what they could mean for OpenTable's growth.

Benchmark lowered its price target from $60 to $50, leaving Citi as one of the view financial services firms to maintain its previous position. City said in a report that the stock was a core holding:

Our Long Thesis remains largely unchanged, and we believe OPEN's growth & profitability outlook are very solid – due to its high visibility revenue model (subscription/utility), still early stage secular penetration (only 11% of U.S. seated diners), and very high operating leverage (50%+ incremental margins).

However, as of Nov. 1, Citi reduced its price target to $67 from $82.

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