OpenTable Dishes Out an IPO

by: SA Editor Abbi Adest May 18, 2009 | about: OPEN

Abbi Adest

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All eyes are on OpenTable (OPEN), a provider of network management software for restaurants, as the company is set to go public this week. Investors are hoping the company can thaw out the frozen IPO market and get things moving again. The prospects for the offering are debatable, but the mere fact that the company is taking this plunge certainly has much of Wall Street and Silicon Valley talking.

Business Overview (from prospectus)

We provide solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. Our solutions for restaurants include our Electronic Reservation Book, or ERB, which combines proprietary software and computer hardware that computerizes restaurant host-stand operations and replaces traditional pen-and-paper reservation books. Our ERB streamlines and enhances a number of business-critical functions and processes for restaurants, including reservation management, table management, guest recognition and email marketing. The ERBs at our restaurant customers connect via the Internet to form an online network of restaurant reservation books. Our solutions for diners include our popular restaurant reservation website, www.opentable.com, which enables diners to find, choose and book tables at restaurants on the OpenTable network in real time, overcoming the inefficiencies associated with the traditional process of reserving by phone. Restaurants pay us a one-time installation fee for onsite installation and training, a monthly subscription fee for the use of our software and hardware and a fee for each restaurant guest seated through online reservations. Our online reservation service is free to diners.

Offering: 3 million shares at $12 - $14 per share. Net proceeds approximately $16.1 million will be used for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures.

Lead Underwriters: Merrill Lynch, Allen & Company

Financial Highlights:

Total revenues increased $2.7 million, or 21%, from the three months ended March 31, 2008, to the three months ended March 31, 2009. Subscription revenues increased to $8.4 million in 2009, from $6.9 million in 2008, an increase of $1.5 million or 22%... Our operations and support expenses increased $1.1 million, or 27%, from the three months ended March 31, 2008, to the three months ended March 31, 2009. The increase in operations and support expenses was primarily attributable to an increase of $0.5 million in headcount related costs due to an increase in operations and support headcount and a $0.4 million increase in restaurant equipment costs including depreciation on restaurant hardware, equipment and shipping costs in connection with the increase in the installed base of restaurants... Total revenues increased $14.7 million, or 36%, from 2007 to 2008. Subscription revenues increased to $30.3 million in 2008 from $22.4 million in 2007, an increase of $7.9 million, or 35%. Subscription revenues increased due to the increase in installed restaurants. Reservation revenues increased to $23.1 million in 2008 from $17.0 million in 2007, an increase of $6.1 million, or 36%. Reservation revenues increased as a result of an increase in seated diners... Total revenues increased $14.0 million, or 51%, from 2006 to 2007. Subscription revenues increased to $22.4 million in 2007 from $15.5 million in 2006, an increase of $7.0 million, or 45%. Subscription revenues increased due to the increase in installed restaurants. Reservation revenues increased to $17.0 million in 2007 from $10.7 million in 2006, an increase of $6.3 million, or 60%. Reservation revenues increased as a result of an increase in seated diners.

Competitors:

The primary competitor for the OpenTable ERB is the traditional pen-and-paper reservation book. Paper-based reservation books enjoy the advantage of being extremely familiar and simple; however, they are also time-consuming, error-prone, manual and not easily reproduced in case of loss or damage. Through our sales efforts, we explain the benefits of automation to restaurants including greater operational efficiency, superior guest recognition and service and the ability to fill additional seats by offering reservations over the Internet. Other companies attempt to address restaurant needs for computerized reservation management with a variety of technologies.

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