Dot com meltdown survivor and restaurant reservation software company OpenTable had been a rumored IPO candidate for a while. Still, it shocked many when it finally filed its intention to debut on the Nasdaq back in January. What? Does this company just have a thing for market meltdowns?
There’s still no word on when OpenTable will actually price, but so far, the IPO is still on, signaled by the company filing its first quarter earnings with the Securities and Exchange Commission on Friday. What’s more: It had an OK first quarter. Revenues increased from $13.2 million a year ago to just under $16 million, and the quarter had a modest $366,000 profit. Last year’s first quarter came with an $87,000 loss.
Now that the markets have recovered, I’m betting on a pricing later this year. That’s good for me: I’ve been promised a sit down with the CEO once the quiet period is over. (Send me your burning questions!) And it’s certainly a much better thing for OpenTable’s very patient investors and venture capital as a whole. The National Association of Venture Capitalists is so concerned about the lack of IPOs in venture land that it recently laid out an ambitious proposal to change the rules.
But OpenTable is hardly an Internet homerun. It’s frequently described as a consumer Internet company, when really it’s a software-as-a-service company. The good news –for this moment in time—is that that means Open Table doesn’t have an ad model. It actually has paying customers in the form of restaurants using its reservation software and paying it monthly subscription fees.
But what software-as-a-service companies gain in predictability of revenues, they lose in big blowout quarters. In other words: Don’t expect this IPO to set the world on fire. Netsuite—a company with a far bigger addressable market, a better growth rate and more than three times OpenTable’s annual revenues– hasn’t fared well since its 2007 IPO, and so far Salesforce is one of the only SAAS companies to get to $1 billion in annual revenues. A business like OpenTable’s takes a lot of investment in sales and marketing to close a modest deal, and that will be harder as the company strives for more international reach.
But there is one way OpenTable could use this IPO to its advantage: Forget international expansion for now and use the IPO proceeds and new stock currency to acquire a real consumer Internet company or at least some star UI talent.
I’ve long criticized OpenTable for catering only to the restaurants, and not caring much at all for the actual diners. Just look at the so-called loyalty rewards system: You practically have to eat out every day of your life to get a $20 dining voucher, and points expire without any notice. They’d do better not to have a loyalty program at all. In short, for diners OpenTable has been a convenience but not much more. And since many restaurants call you to verify the reservation and insist you call them back, it’s not really even that convenient. Can you imagine having to call United after you’ve already bought your ticket online or call Amazon to verify you really wanted to buy that book?
But increasingly OpenTable seems to be inching in the user-friendly direction, and it turns out being the only player who knows exactly where you’ve dined, when, and what availability there is in restaurants near you at every moment can be a pretty formidable advantage.
Consider user reviews, a feature idea OpenTable only recently launched. My initial reaction was it’d be near impossible for OpenTable to compete with Yelp’s edge, community and UI savvy. But unlike Yelp, OpenTable knows where you’ve dined, when. Like NetFlix or Amazon can prompt you to review a rental or purchase as soon as the transaction has occurred, OpenTable now sends out an email asking for your thoughts. With some UI help and a one-click-from-the-email rating system, the company could get people in the habit of quick reviews and build a library of your tastes, tailoring recommendations in other cities for you, or even sell that data back to restaurants. It shouldn’t aim to get the same depth of reviews that Yelp gets. Instead, it should aim for breadth. A simple, one-click yay or nay on every place you dine that no one else can replicate, because no one else owns the reservation engine.
Here’s another edge that isn’t new, but was new to me: Because OpenTable’s software is at the host stand, diners can search for real-time reservations. Say it’s a Friday night in San Francisco and you’re wondering what restaurant you can get into in ten minutes. Before you’d have to call around blindly asking how long the wait was. On OpenTable you can search for immediate openings in a given neighborhood. Most online reservations sites have an hour cut off because the systems have to sync together. But OpenTable is the restaurant’s system. It’s the first time I’ve seen OpenTable actually do something for me as a diner that I couldn’t have done any other way, and the new location-aware iPhone app makes that functionality all the more powerful.
These are baby steps to the applications OpenTable could develop on top of its in-restaurant software edge if it hired some crack consumer Internet talent. Here’s hoping the IPO is a means to that end, and not just the final destination for a company that’s mostly spent the last decade playing it safe.
this company will eventually acquire or crush Zagats. OpenTable is a real company and much more serious than 99.9% of the companies written about on this blog.
Amen
Zagat Invested 10 million in open table in 2003? I think it is.
could not agree more — we become enthralled by these little feature (that think of themselves as a company e.g. Xobni) and we disregard real companies that have an actual revenue model, generating cash flow. silicon valley has seen limited IPOs b/c we are busy building features and not companies.
Agreed. what the article failed to mention is that OT is not just pure SAAS, like Salesforce. According to the last release I ready, OT earns only about HALF of their revenue from the SAAS model and the other half from the act of consumers who actually go the restaurant where OT has a system and eat there. OT earns on both people who book through OT.com and people who walk into the establishment that are using the software – even though that patron may have never heard of OT, or even have a computer.
Yes, they must scale S&M to get installs, but they get double (roughly) revenue for every sale they make on their SAAS. Long term, that customer acquisition cost will look trivial as they continue to own the market.
I think that we should all applaud a “web” company with 60M in revenue – well done OT! (last time I checked this is roughly 25% of the revenue of Facebook, the biggest “success” in the web space since Google). And FB still loses money hand over fist.
And, OT’s 60M is STILL 50M more than most other consumer”y” web companies that have the hopes of many in the VC community pinned to the amazing still common “go big or go home ad model”.
I say, credit where credit is due…..good job to the company who found a way to make money in the web (especially now), even if it is just lousy 60M.
Good post Sarah. The restaurant owners we talk to also complain of billing issues, location confusion among users, and restrictive rules about how they can reach out to OT customers. Perhaps the very thing – regular revenue – that keeps OT stable also keeps them from innovating as fast as we think they should.
correct me if i am wrong, is opentable system for e restaurants a black-box system that e restaurants buy to use in their premises?
Yeah black box, I have the white box, that is open source.
Opentable has to file for an IPO because they have exhausted all other forms of fund raising. How many down rounds of funding can one company have and keep on operating? If they can’t survive on their existing capital, they will have to file an IPO at whatever price the market will bear even if it is sub $5.00.
Just so we’re clear, the ticker price you see tells you *nothing* at all about the stock. I think what you meant to talk about is the market cap, or valuation.
Microsoft has a $180 billion valuation right now with the stock around $20. They could keep the market cap at $180, but bring the stock down to $2 if they wanted, and the stock wouldn’t be any more “expensive” or “cheaper” than it had been before. They could do a 10 for 1 split creating that $2/share price, and that event doesn’t really change anything at all for stockholders… The portion of the company you own is still the same. Remember, stocks are a portion of a company, it’s not just a ticker symbol that should fluctuate with people’s emotions, even though that’s what it ends up doing usually.
Here’s my only point – the ticker price isn’t a good way to judge how “expensive” a stock is. I know this isn’t an investing blog or something, but this seems to be a very common misconception.
your explanation of market cap and stock price is overly simplistic. so get off your high horse and stay on topic.
Actually, I have noticed a large percentage of TC readers do not understand the relationship between a company’s stock price and its valuation…Ankit’s comments are long overdue, as simple as they may be.
love opentable! my admin assistant books reservations, and i get email updates!
Not a single link to open table? that’s mean.
>Now that the markets have recovered,
??
>The good news –for this moment in time—is that that means Open Table doesn’t have an ad model.
and it shouldn’t. ad models don’t make much sense for OpenTable.
>A business like OpenTable’s takes a lot of investment in sales and marketing to close a modest deal…
True. Just like most companies (software or otherwise). Not every business that utilizes the internet needs to follow the passive income ad-based model …to acquire a real consumer Internet company or at least some star UI talent.
Not sure what you’re getting at with the suggestion to acquire another “internet company”. Why? Who? To what end? I agree with the UI talent…but that’s something every software company should be aggressively pursuing.
>You practically have to eat out every day of your life to get a $20 dining voucher…
Not true. But maybe you were just being sarcastic. Anyway, you only have to eat out about once every 2 weeks or so to get a $20 certificate each year. I’m going to guess that you and most people that use OT dine out more often than that.
>And since many restaurants call you to verify the reservation and insist you call them back, it’s not really even that convenient.
100% agree. I’m glad someone brought this up – it essentially undermines OT’s system. Unfortunately, it’s not all OpenTable’s fault. It has to do with the nature of restaurant reservations. Generally speaking, you do not put down a credit card or any other monetary guarantee when you make a reservation. You haven’t purchased anything. You’ve simply made a flimsy agreement and many people fail to show up or cancel. This is why restaurants call to confirm – proper table management is essential to their survival. OT needs reconcile this and there are several ways to do that. The reason United and Amazon don’t call is b/c they already have your money – you’ve purchased something. So that’s not a particularly apt comparison.
They have “specials” for certain restaurants where you can just dine out 2x and get your $20 voucher.
So, let me get this straight. Twitter: no business model, cash flow negative -> constant love-fest on Techcrunch. OpenTable: Profitable business, recurring revenue streams, IPO = criticism of lack of San Francisco-ish social networking features.
they don’t have any IQ here at TwitterCrunch…starting with arrogant Mike
That’s pretty much it in a nutshell. OpenTable is criticized for not being trendy or flashy. It’s probably easy to see that as a negative when you’re being bombarded with pitches at TC all the time.
you nailed it. i am going to tweet about this right now.
i disagree – this is clearly more a “consumer internet” company than a SaaS business. The reservation system is just a trojan horse supplied to restaurants in order to get access to the inventory. The model just doesn’t work unless they create a compelling online service for consumers. W/ the distribution network largely in place in its core markets, growth will come from driving more consumer demand – as well as expanding into new markets (imo).
“…growth will come from driving more consumer demand – as well as expanding into new markets (imo).”
Congratulations on your vision, but you’ve just described every business in existence. And. the “trojan horse” idea doesn’t work b/c it is obvious their strength (and value-add) is partially derived from the HW/SW on premises.
OT is obviously in a strong position to succeed in new ways and for a commenter or journalist to play “product manager” at this point is just laughable.
“Here’s another edge that isn’t new, but was new to me: “….
this chic just described a basic fundamental feature of opentable and why it even exists today. very observant. i’ve read her earlier articles and she’s been wrong on just about everything. buy what company? hire UI talent? this company started way before web 2.0 and has made big leaps already and appears to be on the right track. their top ten feature is as web 2.0 as it gets.
i recommend she learns a little more about opentable before formalizing an opinion.
I think you misunderstand the mission of TechCrunch.
Let’s hope they go public. The economy needs more startups to go public which will spur investment from venture capital. This will create jobs at small companies and also benefit law and accounting firms which handle the IPO.
This article seems to be unfairly rough on OpenTable. What they are is a real business. Rather than beating up on them for not being more spectacular they deserve to be praised as a model for how real businesses can thrive on the web. Not everyone can be or should try to be twitter. While some people fall all over themselves trying to be the biggest fanboy ford the “next big thing” other people need to run boring old predictable and profitable businesses. What open table has, as mentioned in the post is a reservation engine that has become the industry standard. They shoehorned their way into that position with an ingenious pricing model that rewards them for performance. I wouldn’t be so flippant in your dismissal of this company. While they may have challenges like any real business they have achieved a lot in a business notoriously resistant to technology.
@ EH, what is TC’s mission? I’m not even sure why Opentable was even covered on TC. Although I am a bit impressed with the dialogue this article brought out. But has TC exhausted all other options on covering TECH companies? Or has the criteria for being a TECH company to be covered by TC been reduced to “having a website” and/or being virtual.
This Sarah Lacey woman is TERRIBLE. She has NO idea what she is talking about. Her posts are based off of anecdotal evidence. No wonder her book failed.
As an OpenTable user (and former consultant to a restaurant implementing OpenTable, I wish OpenTable every success. Although their technology stack isn’t sexy or cutting-edge, they do provide a valuable service to diners, not just restaurants. Best reservation features on iPhone, and in my experience more reliable patron reviews, unlike, say, on Urbanspoon (w/c I also use).
Reviews scare away the business customers. It’s difficult to cater to both consumers and businesses. Typically you need to pick one or the other to focus on.
Eh? Newspapers managed it for a couple of hundred years. The ad department trying to get restaurants to advertise and the restaurant reviewer panning them. It’s all down to balance.
Previously it was mainly word of mouth that made or broke a restaurant, now online reviews can do that but it’s a more dynamic mechanism.
There are restaurants that provide rotten service and do well. They are called “tourist restaurants” and they can do that because they only ever feed a customer once.
Tripadvisor, Yelp, OpenTable, Qype, 5pm are changing that. Tourists can see the locals’ reviews.
Good luck to OT.
Best
Ronnie
I wouldn’t put a dime on this. Open Table works with the kind of restaurants that are closing on a regular basis. As for reviews there are better free or fee based sites.
OpenTable is a great service to diners. It is very much easier to find a good restaurant than Zagat or other services. The occasional confirmation call from the restaurant is not a problem. Their “points” system is kind of dumb but also easy to ignore. Their website is very reliable and easy to work with. I complained a while back that it was hard to find restaurants in a given area. Several months later they released such a feature. The company seems very responsive. My only wish is that more restaurants would use their service. However, they seemed to have reached critical mass in that respect as I find myself ignoring restaurants where I can’t book on OT. If more think as I do, it will only be a matter of time before all sign up, unless OT prices their service too high.
“Netsuite—a company with a far bigger addressable market, a better growth rate and more than three times OpenTable’s annual revenues– hasn’t fared well since its 2007 IPO”
Sarah, I have to take issue with this statement.
You seem to be suggesting that NetSuite is somehow being punished by the public markets because of it’s SaaS business model. But honestly look at some of it’s key statistics.
Market Cap: $860m
Enterprise Value: $740m
Forward Looking PE: 99!!!!!!!!
PE (ttm): N/A because it’s not profitable.
PEG Ratio (5 yr expected): 11.6!!!!
Price to Sales(ttm): 5.6
EV to Revenue(ttm): 4.84
This stock is incredibly over priced ESPECIALLY in today’s market. If you compare the apparent market reaction (based on price) to the actual performance (based on revenue and earnings) the market is apparently in love with this stock.
Any public CEO should be wetting his or her pants to have these kinds of internal market/performance numbers.
Google, for example has the following internals:
Forward Looking PE: 16.4
PE (ttm): 28.8
PEG Ratio (5 yr expected): 1.01
Price to Sales(ttm): 5.64
EV to Revenue(ttm): 4.81
If you look closely, NetSuite is basically valued identically to google on a Price to sales and revue basis… which basically means that the market has an equal confidence in the “quality” of the revenue. But Netsuite is being given a major pass on not only current earnings (non-existent) but on forward looking earnings for the next 5 years.
Point is the market has no problem betting that NetSuite’s revenue will easily grow at a rate of 10x Googles.
hmm . . . social recommendation is going to beat out algorithmic. .. there is just too much of a vanity/trendiness factor to the restaurant business. . . yelp will still have a leg up.
Its front page looks static and professional. Kinda reminds me of LinkedIn.
OpenTable has an incredible opportunity to aggragate (some degree they already have) a disaggregated market.
I question the value of pushing their own brand so much. Why not link up to other apps and try to drive a pay per consummated action model?
That is really the second order business that could be excited. Nothing wrong with a good software company, but they have done so much work to aggregate this small market – now use it.
OpenTable has been doing just what you described for a long time. They power the restaurant reservation feature on a long list of local & dining sites such as Citysearch, Zagat, Metromix, etc. These sites get paid a bounty for every reservation they send to OpenTable. That’s part of the reason OpenTable hasn’t pushed their own brand more.
doesn’t work for macs
Sarah, It is sad that you put a negative spin to a positive story. Whether it is a small or a big success, success is a success, specifically these times. It is miserable that we start to degrade a success story.
Disappointed in this type of tone from TechCrunch.
The points rewards system is not why I use OpenTable. That’s the least of their value.
Um the restaurants on OpenTable that aren’t price-tagged with a “$$$$,” sara, don’t call for confirmation.
I’ve never had a restaurant call for confirmation.
How about asking OT CEO why they haven’t made any impact on Supply chain for Restaurants or POS (credit card) terminals? Huge potential business for restaurants that is larger than existing reservations business. OT needs to get a skunk works team on this…. but probably never will because they think that they can’t afford to experiment/ innovate. OT is a good company that has achieved about 1/10th of its potential.
Probably because that’s not their business. Just because they provide a service to restaurants doesn’t mean that they should provide all services to restaurants. It would just dilute the brand, which has a solid hold on what it does– online reservations. Why go toe to toe with Micros and Aloha?
Sarah continues to get the “most idiotic” award on TechCrunch. Her myopic view of what is going on not just at OpenTable but in the industry is consistently just wrong, and now also meanspirited.
OpenTable provides real value to its users and the restaurants it serves, and will continue to grow and succeed because of that. I guess serving customers and creating value people will pay for is “playing it safe”. Shame on them.
And as for “crack internet talent” they apparently need to hire, maybe they should hire a few of the “geniuses” from Twitter, for example, who continue to make sure that service is unstable and completely lacking in innovation. Or perhaps some UI talent from TechCrunch.
Also, I have never had a restaurant call me for confirmation after booking on OpenTable. Maybe the restaurants you frequent just know what kind of giant ass you are, and that you will never call or email them to cancel (even when OpenTable makes that a one-click operation).
Here’s a fun data point. Dogster, Inc.’s Q1 earnings were 50% of theirs…
Wow.. I did not see anything wrong with the article .. She is just a blogger writng about a company ..
Anyway I have a company that Opentable would love to buy
Wow.. I did not see anything wrong with the article .. She is just a blogger writng about a company ..
Yeah Opentable needs to expand is business by adding more services to the over 10,000 restaurants they cater to .. I know a company they can buy ..
$350k in profit per quarter. That makes them worth about 15 million.
OT is a great business and we are all looking closely their steps.
In my modest opinion OT model will have high barriers in order to be leader within certain markets so there are a group of smaller companies looking for right place there.
I hope OT IPO will go ahead because it will be perfect for rest of contenders.
I think OpenTable has a great business going — it’s just the high international expansion spending that’s keeping them from being more profitable. I crunched the numbers here: http://blog.jwe...rant-marketing/
“Can you imagine having to call United after you’ve already bought your ticket online or call Amazon to verify you really wanted to buy that book?”
It’s bad example, Sarah. Reservation is not a purchase.
How is the IPO going? Doesn’t it price this week?