Facebook (FB) added itself to the list of high-profile internet companies vying for a piece of action in the online restaurant reservation industry this Monday by partnering with OpenTable (OPEN) to allow its mobile users to make instant reservations at restaurants.  The move by the social networking giant comes in the wake of decisions by Groupon (GRPN) (see Will Groupon Reserve Chomp On OpenTable’s Business?) and Yelp (YELP) (see Is Yelp’s Acquisition of SeatMe Really A Threat To OpenTable?) to tap into the rapidly growing industry through acquisitions in the recent past.
The deal definitely looks like a win-win situation for both the companies involved. From Facebook’s point of view, the integration of OpenTable’s restaurant reservation offerings with its mobile restaurant pages opens up another ad revenue channel, whereas for OpenTable this partnership will potentially increase the number of diners making reservations at one of more than 20,000 restaurant customers spread across North America who have their own Facebook Page. It is hence no wonder that OpenTable’s shares jumped nearly 8% over trading on Monday immediately after the announcement.
We believe that OpenTable joining hands with Facebook to bring restaurant reservations to the latter’s mobile app will pave the way for a similar integration for Facebook’s web-based restaurant pages too in the future and will positively impact diner growth over coming years. In view of this, we are revising our estimates for the company’s stock to factor in faster reservation revenues over the forecast period. It must be mentioned here that our estimate of OpenTable’s share price is still a good 15% below its current market price.
The last few months has seen several significant changes in the nascent online restaurant reservation industry with some big names in the internet business making their debut in the industry. Industry leader OpenTable responded to the changing scenario by announcing its decision to acquire one of its most notable competitors - RezBook - from Urbanspoon earlier this month. The move also converted Urbanspoon from an adversary to a partner.
OpenTable’s decision to integrate its restaurant reservation offerings with the Facebook Pages of restaurant customers is clearly another step in the same direction - of driving diner growth by offering its services to more people through partners. The focus on this strategy becomes evident at once from the fact that OpenTable has no less than 600 partners including the likes of Zagat, TripAdvisor, Google (GOOG) and Yahoo (YHOO).  And these partners bring in between 5-10% of its diner traffic – a figure that provides significant scope for improvement in the future.
While the OpenTable-Facebook tie-up will be seen only for the latter’s mobile offering as of now, the integration will very likely be extended to the web-based offering too in the future. This should help faster growth in diners for OpenTable, as forecast by us in the chart below. You can see how a rate of growth faster or slower than what we estimate impacts the company’s share value by making changes to the chart below.
Disclosure: No positions.