im interested in hearing some of the wizards in this forums opinion on OpenTable

Price: 80.26
Shares Outstanding: 23M
Market Cap: 1.8B
P/E: 159x
Price 1 yr ago: 24.00
Avg Vol (10-day): 1.1M

2010 earnings per share est: .71/ share, up 213% from 2009.
2010 revenue est: 97.6M, increase of 42% from 2009

4th quarter earnings are announced feb 9, w/ estimates ranging from .17 to .27 w/ avg of .22

How they make the loot:
-providing an electronic reservation book (hardware and software) that computerizes restaurant host-stand operations.
-operating opentable.com, a reservation website which allows customers to book tables over the opentable network in realtime

they make the money both in licensing their technology and services, fees, and $ per diner booked through opentable.com

they currently have ~12,000 restaurants in the US and select markets abroad.

the only numbers i could find in a quick search re: number of diners was from 2009, estimating ~4 million diners per month being seated.
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this has been a pretty fast growing company in 2010 and that price/earnings ratio seems pretty ambitious to my lay brain.

have any of you looked into OPEN much or have any insight into how they are so valuable?

i am considering buying some long-dated puts

They get $0.70 / diner on reservations plus subscription fees / restaurant which amount to like $300 / month.

Theres been a lot of hype lately regarding their mobile app. You'd think people would just google the restaurant itself but I guess theres some appeal to doing opentable since they give you points.

Even though the internet boom produced ludicrous stock movements, there actually is some underlying logic to what happened. In the old days, when you opened a hot business, whatever your product was, it still took a really long time to grow because everything was brick and mortar and you need a ton of capital to open new facilities. The internet is a game changer because overnight you are in everyones living room. Even more awesome is any internet service company because they dont even need that much in the way of distribution facilities. Also succesful internet businesses generate sig cash flow. Way more than EPS would suggest because theres not much in the way of capital requirements.

So as OpenTable gains traction and word of mouth, the growth becomes exponential. Google is the poster child for this. If you look through other internet service comps history, many of them have crazy spikes and crazy selloffs and not all of them were during the internet boom times. When theres buzz on an internet comp, it will go up 300% and when nothing materializes it will give it all back. The logic is what I already described, the buzz alone could mean 100% revenue growth or more. The market knows this and thats why OPEN puts are super expensive.

And on top of this they have the best business model which is taking a small % off of routine transactions. In this way, they're demonstrating a clear value add to their customers. Mastercard is the poster child for this.

The only headwind that I can see is that I presume that their participating restaurants need to have POS software / pretty complex technology already and then they need to sync it up with Open Table. I think CRM does that kind of stuff and its super expensive.

In NYC we have restaurants that do 8 figures annually and that kind of technology is a marginal cost but you have to think theres so many restaurants out there that will never adopt this kind of technology at least until it becomes way more affordable.

Also the perks on Open Table arent really that great. I had to make 20 reservations before I got a $20 gift certificate. Some restaurants give more back but they usually arent that good. Without good perks, theres not much stopping people from just pulling the restaurant's phone number rather than going through Open Table.

I would prob short some but I def wouldn't use the puts. It trades 18x revenue. It could go to 24x, I have no fkn clue, but at some point, it will go back to something normal and as long as you have patience, you're prob going to make money, but it will def be a tough ride and you need to save ammo.

Also, the valuation isnt unique to them, theres a lot of comps like this trading 60x fwd, especially recently on mobile growth. Some are much bigger than OPEN.

I would stay away from the short. Since they are internet based they have the potential to have high net income compared to revenues. Without deep analysis they could easily earn $5 a share in a few years.

At $55 MM revenues they earned $1.
At $68.6 MM they earned $5.
This year at $100 MM they could earn $15.
At $150 MM they could earn $40 or $2 per share.

A measure of how much OPEN has the potential to break out needs to take into account the penetration of mobile computing and Internet usage in general. OPEN was a dotcom company, its that old.

Only now with the mobile boom in the last couple years has OPEN started to take off. Its price is whack right now, but that doesn't mean in a few years it will be on target when earnings match.

With that said...its really up to mobile computing to push OpenTables numbers higher. The Internet has been 'booming' for years now and Opens been around long enough that it should have figured out how to do business and take advantage.

I'll pass.

I recently read a article that outlined why OPEN is a short. It was written in late October by Whitney Tilson of T2 partners. He used its success in San Fran to decipher how much the company is worth should it manage to pull the same results across the country as it has there. At the end of 2009, they seated 24% of the cities diners through online reservation and had its software installed in 67% of restaurants. This is compared to 8% of diners and 36% of all restaurants across North America. He goes on to state that if they are able to achieve the same results (highly optimistic) with net margins at 15% they would generate $200-$240M in revenues with cash flow of $30-$40m put a 15x multiple on it and he comes with a DCF price of $25-$30.

I think the 15x multiple is a bit low considering international prospects but even if you apply a 25x-30x multiple the price is in the $35-$45 range, the problem with shorting or buying puts on the stock is the old saying 'markets can remain irrational longer then you can remain solvent'

I'm short the stock in the $73 region.

Why? shorting is dangerous.. stocks with catchy ideas can sky rocket without any fundamentals...

If you think OPEN is overvalued, buying puts is a much cheaper/less risky way to bet against its decline. Also, there is a huge short ratio... a short squeeze would kill shorts

buying puts in open is extremely expensive.

lol yes and u have to pay for that risk control through implied volatility.

your argument is 'always buy puts because you lose less when youre wrong' but you forgot the other half that you win way less when youre right.

if you had some insight why the implied vol is particularly attractive we might be able to talk further but this response is just moronic.

those numbers look way wrong.

It completely depends on the numbers you use for the amount of reservation taking restaurants. If you use OPEN's own numbers on the total amount of potential customers there is no way they're worth as much as they're now.

I haven't got all the numbers here but I'm fairly confident that OPEN is worth less than $40. I will probably cover before that.

We should get DcifrThs into this thread. I believe he's also short OPEN.

He is considering buying puts.

Which numbers seem of to you?

Its because he's assuming only 30k total restaurants per the company disclosure. Thats how he got 40% market share - company had 12k out of 30k at the end of 2009.

However, the 30k number itself is growing because restaurants are adopting the technology.