It's Time For OpenTable To Think About Diners [View article]
All good points. I believe that when OPEN surveys the diners, the #1 request is additional table inventory. To that end, OPEN feels that investments in gaining restaurants and making the restaurant technology work better and be stickier will best serve restaurants and diners.
I agree that the diner interface can be greatly improved and that OPEN should aggressively invest in user technology to integrate with social networks, etc. not only to offer diners more time saving tools but also to defend their diner network from Google/Zagat, Urbanspoon, or any number of other actual or potential competitors. At minimum, I think that a homepage refresh is in order.
I expect those diner interface changes will be forthcoming since those projects are not difficult or particularly risky, as you note. I'd much rather see those changes sooner rather than later and the recent share repurchase is cause for concern because management might be focused on the stock price instead of the opportunity in front of them.
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
International sales are lumpy and high in part b/c the business in nascent.
Looking at sequential growth either in International or North America is not a good process to analyze the growth.
OpenTable is best valued by looking at North American results. International has a neutral impact on adding value to OpenTable since they are losing money there while doing a good job of executing the business plan.
In North America, seated diner counts increased by 1.6% from Q2 to Q3 in 2010 which is very similar to the -1% Q2 to Q3 in 2011. The same pattern exists in 2007, 2008, and 2009 and yet seated diner counts have consistently increased from by 40-60% on a year/year basis.
Livebookings likely has a high need for cash and is unable to grow without very large sustained investments. This was true for Toptable when they were acquired by OpenTable.
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
OpenTable is a seasonal biz so the same Q2 to Q3 sequential pattern exists in prior years. The press releases are generally not useful for analyzing the company as the 10-Qs are a better source. Most of OpenTable revenue growth is from seated diners and "other" like advertising and discount promotions so I don't think about OpenTable as a tech company but instead more of a media and marking company. The technology is simlple and easy to duplicate.
I scan for results often based on paid ads b/c I'm assuming that those firms depend more on web-based customers and know how to service customers who transact online. Also, the online ads are competitive and often the top listed paid ads are the more expensive, so those firms tends to be higher volume providers with superior service processes.
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
Fund Manager,
In #1 above, to management's credit, the TopTable contribution is clearly outlined in the 10-Q on pg.16 & 17. You can see that ex-TopTable, they grew by 62% YTD 2011 in the U.K. which is distinct from International which grew by 48% YTD 2011.
Lower prices is not often the sign of a good strategy. The burden of proof is on you to demonstrate the strength of the Livebookings business model, the strength of their venture backers, and the quality of their management team. Your speculation would benefit greatly by adding facts.
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]
I view the e-loan failure as a positive for OpenTable. Folks that fail at that level learn alot about themselves and this guy is back in the game so I wouldn't doubt his skills based on a past failure.
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]
I agree that the best fine-dining restaurants deliver personal service but this industry is too hard and the hours are too long for the owner to deliver these services, so there need to be better systems so that management can deliver on that promise day in and day out.
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]
I sort of view OpenTable as a new front of house POS focused on guest management, table management, marketing, etc. There are a lot of analytics that OpenTable is now making available to management in managing table turn, etc. that were not widely available. The traditional POS (i.e. MICROS) which is focused mostly on kitchen production, COGS, inventory, ticket times, labor, etc, etc are primarily back of house functions. So I think there will be some integration on the way, particularly with respect to matching spend and products ordered to the OpenTable front of house POS. This will help restaurants to track OpenTable ROI precisely.
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
I'm not sure on how SA works, but if you submitted this as a "Premium Article" that went through editorial, I think it would have been included on the homepage next to the 2 current articles b/c this is a more balanced look at all of the moving parts and includes a real valuation.
I'm pretty sure that OpenTable gets to the $0.69 per seated diner through a mix of: 1) $0.25 fee for restaurant website derived reservations 2) $1.00 fee for OpenTable.com derived reservations. 3) Cash redemptions based on points "used" from the Rewards Program. (1,000 pts = $10 gift certificate).
The dining rewards payables are the "unclaimed" or "unused" points that have to booked as a liability.
I'm pretty sure that the situation with Rock Bottom's was unique. I've looked at a whole bunch of restaurants on OpenTable and it is hard to find ones that are not fine-dining. So, I think a handful of casual dining restaurants (before Connect became available) had signed up with OpenTable to get the advertising benefit w/o a sales rep pushing them.
On the pricing issue, there is no history of discounting. The average subscription revenue per restaurant was $2853, $2931, and $2902 in 2007, 2008, and 2009, respectively. The average seated diner revenue was $0.68, $0.68, and $0.69 in 2007, 2008, and 2009, respectively. Restaurant people are very good at negotiating for food and everything else and OpenTable has been extremely disciplined in sticking to their core value proposition and not negotiating. Now, the 2010 data is going to be different b/c they introduced the Connect product at that time. Connect should be a significantly higher margin product since there is no hardware to install and support so the slight fall in rev. per restaurant could be net positive.
Point taken on the discount rate. I just don't like CAPM these days b/c the risk free rate is so screwed up by QE.
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
Also, the demise of Spotlight is a net positive both from the standpoint of management's restraint in chasing dollars that may have impaired their long standing restaurant relationships and their wisdom to better exploit their technology advantages to help their restaurant clients make more money. I discuss this http://seekingalpha.co... here in the context of Groupon's impending problems.
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
Barry, Nice article! I think there are a couple of areas you might want to consider more closely. 1) The marginal cost for the next reservation is not quite free. In particular, OpenTable runs its own Dining Rewards program so seated diner revs are net of the rewards. And there is a dining rewards payable that accrues. Since OpenTable does actively promote its services to end users, there is some marketing/advertising cost as well. 2) As long as there are economic profits, new entrants would come into this industry regardless of low pricing. 3) The pricing power issue you mention does not exist. I am not aware of OpenTable making any price concessions for any reason. The probable scenario is that Rock Bottom Brewery signed up for the ERB product which is not ideally suited to that sort of restaurant since they are not fine dining. I would be really surprised if they were paying $1,300 - $1,800 per month for one location since I just can't imagine them taking that many reservations since the average OpenTable restaurant only takes 450 per month. Now, they are likely using the Connect product (which was designed for them) has no subscription fee and is $2.50 per OpenTable generated rez and $0.25 for a restaurant website rez. 4) I don't see a real deceleration in restaurant adds in the most recent quarter. A lot of fine-dining owners take time off too in the summer so there is some seasonality to the restaurant additions just like in the reservation volume. If you look at Q2 to Q3 in 2010, they added 775 restaurants vs. Q2 to Q3 in 2011 where they added 677. 5) The decline you discuss in revenue per restaurant subscriber is expected due to the mix-shift occurring since they added the Connect product a little over a year ago (i.e. see Rock Bottom Brewery). 6) As to your valuation, I think a discount rate of 10% is a more reasonable starting point.
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]
Deja_Vu,
Good points. They include reservation taking restaurants and a subset of restaurants that only sometimes takes reservations but yet would primarily subscribe to attract the OpenTable audience. This is the OpenTable Connect product which costs much less than the ERB product. OpenTable defines its ERB market as 35,000 restaurants so they have about 40% of that todayt. As to the final future % of people that will make a reservation online, it is pretty hard to tell. You are right in that some customers may learn that a reservation is not necessary for certain locations and then won't make a reservation. The guest loyalty programs however are being tied to reservations b/c this is the simplest way for fine-dining restaurant to identify their guests. In other concepts, people are used to having a card punched (i.e. Subway) or handing over a loyalty card to be scanned (i.e. Applebees) when paying the check but those behaviors in fine-dining are not customary.
For a lot of smaller markets, OpenTable is used to attract business travelers and to help small fine-dining restaurants compete against upscale national chains (i.e. Bonefish Grill) which have larger marketing budgets. For example, where I live there are only 6 restaurants listed on OpenTable. There are about 6 other fine dining restaurants not listed on OpenTable. However, I like reading the reviews on OpenTable b/c I know that OpenTable usually has more informed diners than other online reviews so I tend to think about those 6 restaurants that are on OpenTable for those reasons. And, all of those restaurants are generally busy on the weekends even in this small market, so I'm inclined to make a reservation on the iPhone app.
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]
For me, valuation is sort of the last step in deciding to own a piece of a company. In this article, I pick-up on some of the themes that Michael Porter suggests in understanding a company's competitive position in an industry: http://bit.ly/snEdzC
By looking at one of the least expensive solutions in the industry, Freebookings, I make that case that cheap solutions don't solve the needs of most fine-dining restaurants.
I think the company's filings referenced above clearly show lots of organic (not acquisitive) growth.
You might be referring to Q2 vs Q3 sequentially in which case you can read 2009, 2010, and 2011 10-Qs in order to model the seasonality of fine-dining.
It's Time For OpenTable To Think About Diners [View article]
I agree that the diner interface can be greatly improved and that OPEN should aggressively invest in user technology to integrate with social networks, etc. not only to offer diners more time saving tools but also to defend their diner network from Google/Zagat, Urbanspoon, or any number of other actual or potential competitors.
At minimum, I think that a homepage refresh is in order.
I expect those diner interface changes will be forthcoming since those projects are not difficult or particularly risky, as you note. I'd much rather see those changes sooner rather than later and the recent share repurchase is cause for concern because management might be focused on the stock price instead of the opportunity in front of them.
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
Looking at sequential growth either in International or North America is not a good process to analyze the growth.
OpenTable is best valued by looking at North American results. International has a neutral impact on adding value to OpenTable since they are losing money there while doing a good job of executing the business plan.
In North America, seated diner counts increased by 1.6% from Q2 to Q3 in 2010 which is very similar to the -1% Q2 to Q3 in 2011. The same pattern exists in 2007, 2008, and 2009 and yet seated diner counts have consistently increased from by 40-60% on a year/year basis.
Livebookings likely has a high need for cash and is unable to grow without very large sustained investments. This was true for Toptable when they were acquired by OpenTable.
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
Can Groupon Compete? Not Likely [View article]
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
In #1 above, to management's credit, the TopTable contribution is clearly outlined in the 10-Q on pg.16 & 17. You can see that ex-TopTable, they grew by 62% YTD 2011 in the U.K. which is distinct from International which grew by 48% YTD 2011.
Lower prices is not often the sign of a good strategy. The burden of proof is on you to demonstrate the strength of the Livebookings business model, the strength of their venture backers, and the quality of their management team. Your speculation would benefit greatly by adding facts.
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
I'm pretty sure that OpenTable gets to the $0.69 per seated diner through a mix of:
1) $0.25 fee for restaurant website derived reservations
2) $1.00 fee for OpenTable.com derived reservations.
3) Cash redemptions based on points "used" from the Rewards Program. (1,000 pts = $10 gift certificate).
The dining rewards payables are the "unclaimed" or "unused" points that have to booked as a liability.
I'm pretty sure that the situation with Rock Bottom's was unique. I've looked at a whole bunch of restaurants on OpenTable and it is hard to find ones that are not fine-dining. So, I think a handful of casual dining restaurants (before Connect became available) had signed up with OpenTable to get the advertising benefit w/o a sales rep pushing them.
On the pricing issue, there is no history of discounting. The average subscription revenue per restaurant was $2853, $2931, and $2902 in 2007, 2008, and 2009, respectively. The average seated diner revenue was $0.68, $0.68, and $0.69 in 2007, 2008, and 2009, respectively. Restaurant people are very good at negotiating for food and everything else and OpenTable has been extremely disciplined in sticking to their core value proposition and not negotiating. Now, the 2010 data is going to be different b/c they introduced the Connect product at that time. Connect should be a significantly higher margin product since there is no hardware to install and support so the slight fall in rev. per restaurant could be net positive.
Point taken on the discount rate. I just don't like CAPM these days b/c the risk free rate is so screwed up by QE.
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
OpenTable: Trying To Not Screw Up A Free Lunch [View article]
1) The marginal cost for the next reservation is not quite free. In particular, OpenTable runs its own Dining Rewards program so seated diner revs are net of the rewards. And there is a dining rewards payable that accrues. Since OpenTable does actively promote its services to end users, there is some marketing/advertising cost as well.
2) As long as there are economic profits, new entrants would come into this industry regardless of low pricing.
3) The pricing power issue you mention does not exist. I am not aware of OpenTable making any price concessions for any reason. The probable scenario is that Rock Bottom Brewery signed up for the ERB product which is not ideally suited to that sort of restaurant since they are not fine dining. I would be really surprised if they were paying $1,300 - $1,800 per month for one location since I just can't imagine them taking that many reservations since the average OpenTable restaurant only takes 450 per month. Now, they are likely using the Connect product (which was designed for them) has no subscription fee and is $2.50 per OpenTable generated rez and $0.25 for a restaurant website rez.
4) I don't see a real deceleration in restaurant adds in the most recent quarter. A lot of fine-dining owners take time off too in the summer so there is some seasonality to the restaurant additions just like in the reservation volume. If you look at Q2 to Q3 in 2010, they added 775 restaurants vs. Q2 to Q3 in 2011 where they added 677.
5) The decline you discuss in revenue per restaurant subscriber is expected due to the mix-shift occurring since they added the Connect product a little over a year ago (i.e. see Rock Bottom Brewery).
6) As to your valuation, I think a discount rate of 10% is a more reasonable starting point.
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]
Good points. They include reservation taking restaurants and a subset of restaurants that only sometimes takes reservations but yet would primarily subscribe to attract the OpenTable audience. This is the OpenTable Connect product which costs much less than the ERB product. OpenTable defines its ERB market as 35,000 restaurants so they have about 40% of that todayt. As to the final future % of people that will make a reservation online, it is pretty hard to tell. You are right in that some customers may learn that a reservation is not necessary for certain locations and then won't make a reservation. The guest loyalty programs however are being tied to reservations b/c this is the simplest way for fine-dining restaurant to identify their guests. In other concepts, people are used to having a card punched (i.e. Subway) or handing over a loyalty card to be scanned (i.e. Applebees) when paying the check but those behaviors in fine-dining are not customary.
For a lot of smaller markets, OpenTable is used to attract business travelers and to help small fine-dining restaurants compete against upscale national chains (i.e. Bonefish Grill) which have larger marketing budgets. For example, where I live there are only 6 restaurants listed on OpenTable. There are about 6 other fine dining restaurants not listed on OpenTable. However, I like reading the reviews on OpenTable b/c I know that OpenTable usually has more informed diners than other online reviews so I tend to think about those 6 restaurants that are on OpenTable for those reasons. And, all of those restaurants are generally busy on the weekends even in this small market, so I'm inclined to make a reservation on the iPhone app.
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]
By looking at one of the least expensive solutions in the industry, Freebookings, I make that case that cheap solutions don't solve the needs of most fine-dining restaurants.
I think the company's filings referenced above clearly show lots of organic (not acquisitive) growth.
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]
You might be referring to Q2 vs Q3 sequentially in which case you can read 2009, 2010, and 2011 10-Qs in order to model the seasonality of fine-dining.
'Free' Restaurant Reservations Are Not A Threat To OpenTable [View article]