New Competitive Landscape
Theoretically, competitors within the U.S. are threatening OpenTable's domestic business. The European online restaurant reservation website Eveve claims that within four months, many restaurants in Minneapolis, Minnesota have subtly shifted from OpenTable to Eveve. Another European online restaurant reservation site, Livebookings, is also entering the U.S. market. This site offers free reservation services to restaurants and provides advanced features such as email marketing and data analysis.
Currently, based on 2011 profit expectations, OpenTable's price-to-earnings (P/E) ratio is 34 times, still twice the average level of the S&P 500 index. Normally, growth stocks can achieve higher valuations, but analysts predict that OpenTable's revenue growth rate will drop to 22% this year. This is similar to Google's early-stage revenue growth rate, yet Google's P/E ratio is only about 17 times.
In the past few years, OpenTable's performance has been excellent, exceeding Wall Street analysts' expectations for several consecutive quarters. OpenTable's development also shows that internet concept stocks can perform well in a bear market and attract investors. In April last year, OpenTable's stock price reached $118. Subsequently, multiple internet companies like Pandora, LinkedIn, and Zynga also went public.
Stock Price Fluctuates Slightly
Another reason for the decline in OpenTable's stock price is that the company's business side is facing challenges. Although OpenTable's profits will continue to grow, the growth rate will significantly slow down. Core markets for OpenTable, such as San Francisco, have begun to saturate, and the company is encountering increasingly fierce competition in some new markets.
Considering that OpenTable's stock price has been declining, and the company's P/E ratio remains at a high level, its stock price will likely remain unstable. However, the rise and fall of OpenTable's stock price serves as a warning to investors pursuing other internet companies, such as Facebook. Even if the market has not seen an internet bubble similar to the late 1990s, some elite internet company stocks may still bring significant losses to investors. (Weijin)
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However, in the past eight months, OpenTable's stock price has sharply declined, with its market value decreasing by 67%. Currently, OpenTable's stock price is approximately $39, and its market value is $930 million, not far from the $700 million it was worth just after its IPO.
So why has OpenTable's stock price fallen? There are two fundamental reasons, and investors have started pooling funds to participate in the IPOs of popular Web 2.0 companies such as Zynga, Groupon, and Facebook, which have already occurred or are about to occur.
Under the leadership of former CEO Matthew Roberts, OpenTable's image has transformed from a bright future company into a chaotic one. However, neither of these views is entirely correct. OpenTable is still a well-operated company and is in a growing market. OpenTable is simply facing more intense competition.
Reason one lies in investor sentiment. If a stock price has irrationally surged dramatically, then it is very likely to experience a dramatic irrational decline. In April this year, OpenTable's P/E ratio reached 100 times, a valuation that had become unreasonable.
Some short sellers of OpenTable pointed out that the number of reservations through OpenTable decreased quarter-over-quarter in the third quarter. However, this statement is misleading because over the past four years, the third quarter has consistently shown a quarter-over-quarter flattening or decrease in reservation numbers, making it a normal seasonal trend. In the first nine months of 2011, the number of reservations through OpenTable increased by 51% year-over-year.
Currently, about 24,000 restaurants use OpenTable's reservation system, while Livebookings has around 9,000 customers. However, pricing pressures have forced OpenTable to lower its fee standards, impacting the company's profit margins. OpenTable's operating profit margin is already under pressure, reaching 16.9% in the third quarter of this year, compared to 18.6% in the same period last year.
Two Reasons
Normally, if a stock price increases by two-thirds over several months, it signifies that the company faces opportunities, such as scandals, inadequate management, or a significant non-property downturn. However, none of these factors apply to OpenTable. The company expects its revenue to increase by 40% year-over-year in the latter part of 2011, with profits rising from $0.87 per share in 2010 to $1.20. OpenTable remains a growth company with an operating profit margin of 17%.
OpenTable went public in May 2009 at an issue price of $20, during the most severe period of the U.S. economic recession. However, investors still viewed favorably OpenTable's profit growth prospects, leading to a significant rise in the company's stock price in the subsequent months.
Additionally, the departure of OpenTable's former CEO, Jeff Jordan, had a notable impact on the company. In May last year, OpenTable announced that Jordan would resign from the company to become a partner at venture capital firm Andreessen Horowitz, causing the company's stock price to drop by 15%. On December 20th, when Jordan resigned from his position on OpenTable's board of directors, the company's stock price again fell by 4%.
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