Investors in OpenTable Inc (Nasdaq:OPEN) have delighted in a real feast. Does the San Francisco-based online restaurant reservation service still have value having heated up a whopping 200% since the May 2009 IPO?

IN PICTURES: 5 Common Small Business Mistakes

OpenTable Fills Seats
Restaurants seeking ways to drive traffic and cut costs use OpenTable's reservation management services. Reservations are made by diners online for free, using OpenTable's website or smart phone application, and they can choose a restaurant by sorting through OpenTable's searchable options that include types of food, price range and available dates and times. OpenTable earns revenue by charging monthly and per-reservation fees to restaurants for access to the system, plus revenue from advertisements on their websites.

Highlighting the value of OpenTable's expanding network, sequential and annual growth has been outstanding. Fourth-quarter net income rose 65% on strong bookings and new restaurant registrants. For all of 2010, net income nearly tripled, and revenues rose 44%.

Not Overbooked Yet
Strong growth should continue. A higher percentage of smart phones comprising the cellular market will increase OpenTable's exposure to users; smart phone reservations soared 189% last quarter. Additionally, OpenTable is venturing into related businesses that will contribute to earnings. Recognizing the proliferation in group buying coupons, OpenTable now sells third-party restaurant coupons, much like regional services such as ScoutMob.

Offering restaurant coupons is a natural development for OpenTable. Yet global markets represent the biggest opportunity. Overseas revenues, which currently account for about half of OpenTable's business, grew quicker than the North American segment last quarter . The acquisition of U.K. rival Toptable.com will be the near-term centerpiece of that growth story. Toptable.com lets OpenTable compete for European market share with reservation service providers, like Livebookings, that already have a foothold in the U.K., Germany and France.

Dining Out with the Competition
Despite the dominant domestic market share position, OpenTable does face significant competition at home. IAC/InterActiveCorp (Nasdaq:IACI) owned UrbanSpoon's reservation service, Rezbook, will battle directly for OpenTable users. Rezbook has the advantage of having IAC's search engines ask.com and Citysearch to back it up. Regional players are setting the table too, including Southwest-based start up Reservation Genie.

Still, OpenTable has a big leg up in market share and name recognition. Rezbook is going to have to dig deep into IAC's pockets to match OpenTable.

OpenTable is indirectly competing with other, bigger web portals as well. Search giant operators Google (Nasdaq:GOOG), Yahoo! (Nasdaq:YHOO), and Microsoft (Nasdaq:MSFT) already filter information for restaurant seekers. Even GPS hand-held device maker Garmin (Nasdaq:GRMN) prominently features a restaurant finder.

While search engines can sort a lot of information and options, OpenTable's service handles the actual booking of the reservation. Also, OpenTable provides restaurateurs with useful POS integration and client analytics. (From social media and gaming sites to social networking and social buying, many of these websites are fetching multi-billion dollar valuations. To learn more, see What Are Social Media Sites Really Worth?)

The Bottom Line
Valuation has improved since Valentine's Day with the stock correcting 10%. Considering the $15 billion expected value of soon-to-be-publicly traded online buying site Groupon, OpenTable's $2 billion market cap and soaring price-to-earnings multiple doesn't appear as overpriced as the 200% near-two-year rally would indicate.

Just as heated up valuation and competition are concerns, rising energy prices threaten to overwhelm the technology services sector. Consumer spending pressures present a real danger to OpenTable. But new ventures, the growth in smart phone application usage and, most importantly, open markets abroad make OpenTable's fundamental future look tasty.

Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  7. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  8. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  9. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center