Online reservations firm OpenTable (OPEN) reported strong second quarter results late last week. The firm earned adjusted earnings per share of $0.42, a bit higher than the Street was expecting and up 27% year-over-year. Revenue grew 15% year-over-year to $39.6 million, which was in-line with consensus expectations. Full year guidance was also solid, as the firm predicted that revenue will be between $160 million-$164 million (a 15% year-over-year increase) and diluted adjusted earnings per share to be in the range of $1.54-$1.66.
The company is particularly excited about the re-launch of its toptable in the UK because it could lead to growth in London, which it cites as having the largest concentration of restaurant-goers in the world. Revenue in its international segment grew just 1% to $5 million; however, overseas penetration is just a fraction of that in North America. Still, the firm seated 2.2 million diners internationally, a 39% year-over-year increase. Even if economic growth remains sluggish, we think the firm will benefit from increased adoption.
North American results remain strong. Revenues during the second quarter increased 18% to $34.5 million, and diners seated increased 26%, to 28 million. Management mentioned that Apple (AAPL) will integrate Siri to work with the OpenTable iPhone application for iOS 6. Though we don't expect this to have more than a marginal effect, we think OpenTable needs to stay ahead of the curve with technology, and this certainly helps.
Ultimately, we thought OpenTable reported a strong quarter, but we don't think its business model is immune from competition. Newly-public companies like Yelp (YELP) and Facebook (FB) may attempt to compete in the restaurant-booking space, and the barriers to entry are low, in our view. We think shares look a bit rich at current levels.
Additional disclosure: Some of the firms mentioned in this article may be included in our market-beating Best Ideas Newsletter.
