Mobile Offerings Boost OpenTable's Earnings, $56 Fair Value

May. 6.13 | About: OpenTable, Inc. (OPEN)

OpenTable (NASDAQ:OPEN) came out with its performance figures for the first quarter of the year on Thursday. It reported earnings of $7.1 million from revenues of $45.5 million for the quarter. Total revenues increased about 6% sequentially and more than 15% compared to the figure for the same quarter last year, fueled by the increased adoption of OpenTable's mobile app by diners to make restaurant reservations.

High operating expenses -- a known characteristic exhibited by OpenTable for the first quarter of each year -- resulted in a sequentially lower earnings figure, although the bottom-line figure was almost 50% more than that for the first quarter of 2012. That aside, there were a few significant operational milestones that OpenTable achieved in Q1 2013. The company ended the quarter with more than 20,000 restaurant customers in North America for the first time, while its international operations seated more than 3 million diners over the period -- another first.

We maintain our $56 price estimate for OpenTable's stock as the company did not release any surprises with its performance figures.

Diner Growth Remains Strong, as Does the Outlook for Reservation Revenues in the Near Future

The revenue that OpenTable earns for each diner it seats at restaurants is the biggest source of value for the online restaurant reservation company. Nearly two-thirds of the company's total value is pegged to this revenue stream. We pointed out late last year in our article "What Is OpenTable's Downside From Slowing Diner Growth?" that growth in the number of diners seated by OpenTable shows a discernible trend year after year, with the number of diners seated showing a spurt in the first and fourth quarters, moderate growth in the second quarter, and negligible to negative growth in the third quarter.

True to this trend, the number of diners seated rose 14% compared to the figure for the previous quarter, with 92% of the 37 million diners being seated in restaurants across North America (the U.S., Canada, and Mexico) and the remaining at international restaurants (primarily the U.K., Germany, and Japan). The increasing popularity of OpenTable's mobile app also becomes evident from the fact that 36% of the diners seated this quarter used their smartphones or tablets to make restaurant reservations, as revealed by the company's management in the earnings discussion.

This is good news for OpenTable as reservations made through the mobile app attract a $1 fee per diner seated compared to 25 cents per diner for reservations made through the restaurant's website. Hence, an increasing number of diners switching to the mobile app would mean an increase in net reservation fee income OpenTable generates per diner as represented in the chart below.

Disclosure: No positions.