OpenTable (OPEN) demonstrated its continued dominance in the online restaurant reservation industry with a better-than-expected earnings release late last week. The company reported net income of $5.7 million and revenues of $39.63 million for the second quarter of the year. While revenues did not see much improvement from $39.4 million recorded for the previous quarter, bottom-line rose by almost 20% on considerably lower expenses. (OpenTable, Inc. Announces First Quarter Financial Results, Press Release, May 1, 2012)
Swelling expenses have been the biggest concern for investors, which is why reduced expense figures for this quarter, combined with the optimistic U.S. employment report for July, helped OpenTable's shares gain about 15% over trading last Friday. OpenTable followed the earnings report with the announcement to repurchase an additional $50 million worth of shares this year. The company had repurchased about 1.3 million shares worth $50 million during December 2011 – January 2012.
We maintain a $52 price estimate for OpenTable's stock, about 30% above the current market price as we continue to believe that there are several untapped potential revenue sources that OpenTable would realize in the years to come.
Reservations Continue To Grow As More Restaurants Hop On Board
OpenTable's formidable reputation in the online restaurant reservation industry serves it well as the number of diners making reservations through its system has seen brisk growth quarter-after-quarter. It seated more than 30 million diners over this quarter – a first for the company. As seen in the past, more than 90% of these diners were seated at restaurants across North America.
There were some notable developments with respect to OpenTable's restaurant customer base in Q2, though. While the company added 600 new restaurants in North America, the international restaurants' tally reduced by 1,427. This was because 1,578 restaurants which were using toptable.com earlier decided to opt out from OpenTable's plans to replace the toptable.com software with OpenTable's own Electronic Reservation Book (ERB) software.
Expenses Seem To Be In Check This Time Around
We have repeatedly highlighted how important it is for OpenTable to keep an eye on its expenses as they outpaced revenue in terms of growth in all quarters since Q1 2011, except Q4 2011. Understandably, the company is spending more to ward off competition in North America and to expand its reach in international markets. But the expenses cannot be allowed to go out of hand – especially under the current economic conditions, when generating revenues is more difficult.
OpenTable reported lower costs under its operations and support, sales and marketing, as well as general and administrative heads, with only technology-related expenses showing an increase this quarter. The company cut quarterly expenses from just under $32 million in Q1 2012 to $30.7 million in Q2 2012 – a 4% improvement. More importantly, general and administrative costs shrunk by nearly a million with an almost 12% improvement.
Disclosure: No positions