OpenTable Inc (OPEN) Might Surprise You

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Online traffic numbers might relate to seasonality, so it’s important not to get too caught up in them. A much larger concern is the health of the consumer.

As well all know, high-income consumers have done well over the past several years thanks to stock and real estate investments. Since the vast majority of restaurants that require reservations cater to high-income consumers, this has been a big boon for OpenTable.

Looking ahead, both stocks and real estate might perform well, but there is much debate about sustainability in each area due to the potential tapering of monetary stimulus and higher interest rates. If stocks and real estate aren’t capable of continued growth, then high-income consumers will take it on the chin, which will then lead those consumers to cutting their discretionary spending habits. One of the first areas they will cut is dining out. This, in turn, would negatively impact OpenTable.

Similar ideas

Yelp Inc (NYSE:YELP) provides an online platform where people can write and read reviews for local restaurants, nightlife, entertainment, services, and more. Contrary to popular belief, Yelp Inc (NYSE:YELP) isn’t a competitor to OpenTable; they’re partners. However, you probably don’t care, because you’re just looking for the best long-term investment. It’s not likely that you will find it with Yelp Inc (NYSE:YELP).

Though Yelp’s revenue has increased every year, losses are commonplace on an annual and quarterly basis. Additionally, Yelp owns a profit margin of -9.03%, and it’s trading at 219 times forward earnings, making it incredibly expensive. Does 1999 come to mind? Yelp is up more than 100% year to date, which is ludicrous. This would be an extremely high-risk investment.

Tripadvisor Inc (NASDAQ:TRIP) is similar, as it does offer restaurant and other local reviews, but it’s more focused on travel. Regardless of the focus, it’s a much better-run operation than Yelp. Revenue and earnings have consistently improved over the past three years, the profit margin is strong at 25.74%, and it’s trading at 28 times forward earnings. This is still expensive, but there would be no reason to pay more for Yelp when you can invest in a stronger operation without having to pay such an enormous premium. Tripadvisor Inc (NASDAQ:TRIP) would still be risky; it’s simply a better option than Yelp on a relative basis.

Conclusion

OpenTable is enjoying strong momentum, and there is still upside potential, but broader economic concerns make it a risky play. Keep in mind that stocks and real estate won’t continue to appreciate forever; this has been proven time and time again. If high-income consumers see less discretionary income due to weaker performances in investments, it could negatively impact OpenTable Inc (NASDAQ:OPEN).

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends OpenTable and TripAdvisor. The Motley Fool owns shares of TripAdvisor. Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article OpenTable Might Surprise You originally appeared on Fool.com is written by Dan Moskowitz.

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