Looking for a unique emerging growth investment for the short-term? Try San Francisco based OpenTable Inc. (NASDAQ: OPEN). The company operates an online network that connects restaurants who take reservations with perspective diners who want to make them. It uses a proprietary electronic reservation book (ERB) which successfully builds a comprehensive customer database allowing restaurants to manage yields and communicate with customers more efficiently. Restaurants pay OpenTable a referral fee for completed reservations. Consumers pay nothing for the service.
OpenTable hosts a restaurant reservation website as well as having mobile apps that potential diners can use to make reservations from their smartphones. In fact, CEO Matt Roberts noted that over 32 percent of the reservations made in the third quarter of this year were completed using OpenTable’s mobile apps. The company has a notable network of over 19,000 restaurants in all 50 states. It also does business in the European market. In 2010 the company acquired toptable.com, a reservation site based in the United Kingdom. OpenTable has operations in Japan as well.
OpenTable had an impressive third quarter with revenue of $39.7 million. That’s a handsome increase of 16 percent over the previous year. The business seated 27 million hungry diners in North America during the third quarter, posting another tidy increase of 26 percent year over year. They also reported earnings per share of $0.42, $0.06 better than analyst’s estimates for the same period. OpenTable has a market cap of $970.35 million and shares are selling for just over $43 with a 52 week high of $52.64 and a low of $31.54.
So why should you invest in this offering? For one thing OpenTable is the undisputed leader in the online reservation business. The company handles nearly half of all full service, reservation-taking restaurants in the United States, Mexico and Canada. In addition, look for OpenTable to benefit greatly from Apple’s iOS 6’s enhancements, one of which is the ability to make restaurant reservations through OpenTable using Siri. This will immediately make the company more visible to consumers. Increased customer popularity will not make OpenTable money alone but the increased customer usage will drive up the company’s value to restaurants. Also the business has more than doubled its revenue over a three year period and has tripled its free cash flow during the same time-frame. These are pretty compelling reasons to consider investing here.
On the down side, OpenTable carries a staggering 41 percent short interest ratio. No company is immune to competition and numerous smaller, cheaper competitors popping up in different regions can explain OpenTable’s short interest. Rezbook and CityEats are probably the nearest but they do not have the extensive distribution that OpenTable possesses. Risks are always high in a dynamic business but OpenTable is delivering strong results and its network is growing. I think it’s an underrated stock that is worth a serious look.