OpenTable Inc (OPEN): Should You Reserve a Place in Your Portfolio for This Stock?

Page 2 of 2

According to its most recent investor presentation, 15% of U.S. diners are seated through OpenTable’s reservation systems, with 36% of reservation-taking restaurants installing its systems. In contrast, half of reservation-taking restaurants in its flagship market, San Francisco, install OpenTable Inc (NASDAQ:OPEN)’s systems, with 35% of the city’s diners seated through its systems. This implies significant room for further penetration and growth.

Its largest international market, the U.K. shows similar statistics. Only 3% of diners and slightly more than one-quarter of reservation-taking restaurants are using OpenTable’s reservation systems. OpenTable Inc (NASDAQ:OPEN) acquired a, a leading U.K. restaurant reservation site in 2010, and integrated its real-time reservation availability technology with’s technology platform in 2012. I am positive on OpenTable on further expanding its U.K. presence.

Peer comparison

OpenTable’s peers include Zillow Inc (NASDAQ:Z) and HomeAway, Inc. (NASDAQ:AWAY).

Zillow is the leading online real estate portal, providing property-related information and property listings to its users. It registered record revenue of $39.0 million for the first quarter of fiscal 2013, representing a 71% year-over-year increase on the back of 52 million monthly unique users on mobile and web in April, the highest in its history.

Going forward, one key growth area for Zillow is its new rental-listings business. Zillow currently has more than 600,000 rental listings, equivalent to about 7 million rentals. This is small relative to the entire market opportunity based on management estimates for demand from 100 million U.S. renters. I am negative on Zillow, given its exposure to the cyclical U.S. residential housing market and short profitability track record. Zillow only became profitable in 2011; while OpenTable has been in the black for the past four consecutive fiscal years.

HomeAway is a large global online marketplace for vacation rental homes. Similar to OpenTable Inc (NASDAQ:OPEN), HomeAway operates on a subscription-based business model with recurring revenue accounting for about 85% of fiscal 2012 turnover and high renewal rates above 70%. Based on the lower end of management guidance, full- year fiscal 2013 revenue and EBITDA are expected to increase by 20% and 21%, respectively.

Despite this, I am not going to invest in HomeAway because of the highly fragmented nature of the vacation rental industry.  There are literally thousands of vacation rental listing websites competing directly with HomeAway, and the industry is too exposed to discretionary consumer spending.


OpenTable benefits from network economies and boasts of strong recurring revenue from its huge network of more than 27,000 restaurants globally. Although a forward P/E of 28 might seem expensive on an absolute basis, OpenTable is undervalued on a relative basis compared with its online peers valued at above 30 times forward P/E.

In addition, it delivered an impressive trailing-12 month ROE of 18.1%, which will put many of its peers to shame. I will recommend OpenTable Inc (NASDAQ:OPEN) as an investment candidate, which is a proxy of increasing penetration rates of online and mobile reservation systems like that of OpenTable.

The article Should You Reserve a Place in Your Portfolio for This Stock? originally appeared on

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

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2