OpenTable Inc. (NASDAQ: OPEN), a San Francisco-based restaurant reservation service, announced strong fourth-quarter and full year 2010 financial results Tuesday, topping analyst expectations and causing an upswing in share prices.
The company reported a Q4 net income of $5.1 million, or 21 cents per share, an increase from their Q4 2009 reports of $3.1, or 13 cents per share, a year ago.
OpenTable reported fourth-quarter revenues of $30.8 million, a 61 percent increase compared to $19.1 million a year ago in Q4 2009. Analysts had estimated revenues of $30.1 million.
Excluding items, which the company explained as being primarily “tax-affected stock-based compensation expense, tax-affected acquisition-related expense and tax-affected amortization of acquired intangibles,” fourth quarter net income was $8 million, or 33 cents per share. Results beat the average analyst estimate of 22 cents per share, excluding items.
Total year over year growth was also strong for the company. Operating income was $17.9 million in 2010 compared to $8.7 million in 2009. Total revenue for 2010 was $99 million, compared to $68.6 million in 2009.
Growth in participating restaurants and diner reservations were partially responsible for the strong quarter. By the conclusion of Q4 2010, there were 13,795 American restaurants participating in the OpenTable system, a 27 percent increase over Q4 2009. In addition, 17.8 million U.S. diners made (and kept) reservations, a 51 percent increase over Q4 2009. Chief Executive Officer Jeff Jordan announced during the company’s earnings call that OpenTable had seated their 200 millionth cumulative diner during Q4. Restaurants pay between $200-$300 per month for an OpenTable subscription, as well as $1 per diner booked through the OpenTable website.
Revenue from international operations continued to lag behind North America. But by the end of Q4, OpenTable reported 6,254 registered international restaurants, a 317 percent increase over Q4 2009. Seated diners totaled 1.5 million, a 352 percent increase over Q4 2009. The rapid growth in restaurants and diners was largely the result of OpenTable’s acquisition of UK-based competitor toptable.com, a deal that was finalized Oct. 1, 2010. Toptable contributed 3,680 installed restaurant additions, approximately 774,000 seated diners, and $3 million in revenue during Q4 2010. Toptable had previously been OpenTable’s largest international competitor in online reservations.
In addition to serving more restaurants and diners, CEO Jordan was enthusiastic about the growth of two recent OpenTable products: OpenTable Connect and Spotlight.
Connect, as it was referred to on the earnings call, is a cloud-based alternative to the OpenTable Electronic Reservation Book. The Connect option has less functionality than the full ERB, but does not require a subscription fee from the restaurants. OpenTable charges restaurants using Connect $2.50 instead of $1 for every diner seated.
Mark Mahaney of Citigroup expressed concern on the call that the Connect option may have a cannibalizing factor on the more profitable ERB business, asking, “What trends are you seeing in downsells from ERB’s to Connect customers?”
Although Jordan admitted that possibility had been one of his concerns when initially conceptualizing the Connect product. “We’ve been pleased that we haven’t had any negative cannibalistic impact that we can ascertain,” he said.
In fact, Jordan explained the new product largely had the opposite effect – many Connect restaurants upgraded to ERB when they realized they needed more functionality. He also said the Connect product enables OpenTable to save customers who want to disaffiliate from OpenTable because they don’t need a full ERB system. Instead of losing those customers completely, many adopt a Connect option instead.
Spotlight, OpenTable’s response to Groupon, has been well received by both restaurants and diners, said Jordan. Restaurants have reported that customers from OpenTable generally spend more per meal and tip more than diners from other discount sites, making restaurants feel they’re gaining long-term clients, not merely one-time deal seekers.
Prior to the earnings announcement Feb. 8, OpenTable’s shares closed up 28 cents at $85.28 on the NASDAQ stock market. In after-hours trading shares fluctuated, initially rising to a high of $90.01 before falling to $84.99. By the time the market opened on Wednesday, they had risen again to $87.01 and kept climbing for the rest of the week, reaching a 52-week high of $94.95 when the market closed on Friday.