OpenTable IPO: You paid how much?
Today's Financial News - Posted May 22, 2009
It is great to see the IPO market doing well, but investors had better pay attention. It is starting to look like the Tech bubble all over again. This will not have good results.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Sometimes I am amazed that a company is even in business, let alone going public on a major exchange. Without a doubt that is the case with this week’s hot IPO, OpenTable (NASDAQ:OPEN).
Shares of the online reservation company went public yesterday and soared 60% as investors flocked to the company in a scene reminiscent of the Internet bubble. It was the biggest opening-day surge since 2007.
Just as any rational investor would figure, the gains did not last. Shares of the company are in the red today and will likely stay that way for quite a while.
Before I get into why I am certain OpenTable is overpriced, let’s look at some of the positive aspects of the news.
The markets are back!
First, it proves the markets are willing to take on risk and inject capital into something other than U.S. Treasuries and gold. Finding $60 million would have been nearly impossible just two or three months ago.
Yesterday, however, investors were tossing their money into the company as if they were sure it was the best deal on the market.
On a much more macro level, and maybe a tad bit cynically, the capital influx can be viewed as a sign my recent thoughts on inflation are dead-on accurate. Investors have finally realized they are sitting on a pile of cash that is about to becoming increasingly worth less. By investing in a company with room to grow, they hope their shares appreciate faster than the rate of inflation.
Unfortunately, OpenTable is not the company that will do it, especially at these prices.
One of the chief strategic dilemmas facing any Web-based company is the industry’s lack of barriers to entry. OpenTable’s product is a good idea, but there is nothing to stop a competitor from stepping in and pushing the company aside.
Going public was a good marketing move, as it helps the company cement its position as a first mover. But it also slows the ability to maneuver through an ever-changing marketplace. Instead of a handful of owners (who just locked in their riches, by the way), the company has to answer to an army of shareholders.
In an environment where speed matters, OpenTable is going to be running with a parachute tied to its back.
Yesterday’s IPO was great for the market and great for OpenTable’s first-round investors, but it created a losing situation for the investors that got in at the top.
Wait for shares to drop back in to the range of $20 to $23 and start your buying. Until then, shareholders are going to wonder what in the world they were thinking.
IPOs are good. But investors have to know their limits.
Next Article: Excel Maritime: A rising tide lifts all ships
3 Responses to “OpenTable IPO: You paid how much?”
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May 22nd, 2009 at 8:17 am
You have Open Table completely wrong – it’s NOT just a web company.
As a restaurateur for a small group of restaurants, we rely on the Open Table SYSTEM (hardware and software) to run all our customer management activities, forecast traffic & revenue, AND bring us new customers through their website (very important these days). No to mention the day-of service floor managemnt activities (balancing tables among my waiters, tracking turn times, and knowing what’s going on at every table in my room at one glance). In all my research there is not one company out there who comes close to offering all these tools to restaurants.
This little system is really sophisticated, and the barriers to entry are actually quite HIGH because all us Open Table customers would have to pull out the system we rely on so heavily to try another solution.
I’d encourage you to go in to any of the restaurants who use Open Table and ask them to show you the box. You can see them on almost any host stand in any decent restaurant around.
May 22nd, 2009 at 8:17 am
It’s interesting that you say:
“One of the chief strategic dilemmas facing any Web-based company is the industry’s lack of barriers to entry. OpenTable’s product is a good idea, but there is nothing to stop a competitor from stepping in and pushing the company aside.”
While this is true of exclusively web-based companies it is not true of OpenTable. They have a physical device placed in each restaurant that they support which gives them up -to-the-minute status on reservations and availability. This is hardly a “lack of barrier” to entry.
May 22nd, 2009 at 2:54 pm
Restaurantguy is right…OpenTable is a lot more than just a web portal. However, OpenTable has solid competitors on the SYSTEM side…GuestBridge, eReserve and QSR to name a few. Ask anyone using these systems and they’ll tell you OpenTable is the laggard on front-of-house technology — often trying to catch-up to these competitors years later.
What these competitors lack is the portal/network. If it were easy to copy, they would have by now. OT is the “yahoo” of restaurant dining…the amount of money needed to capture consumer market share is OpenTable’s barrier to entry…and it is a daunting one. How many hundreds of companies would like to be the next facebook — and why aren’t they? It’s extremely hard to change ten years of consumer behavior…