OpenTable: Restaurant services
OpenTable Inc (NASDAQ:OPEN) is the world’s leading company in two industries: online restaurant reservations, and booking, table management and guest administration software for restaurants. With restaurants increasingly recurring to technology looking to cut costs and better manage its reservations and customer traffic, a bright future seems ahead of this company. Analysts expect it to surpass the industry average earnings-per-share growth by roughly 50% over the next five years, delivering an annual rate of 21% to 22%.
One of the firm’s main advantages stems in its lack of serious competition. Being the most popular reservations website by far and offering an ever-increasing traffic, a network effect constantly attracts new restaurants to hiring OpenTable Inc (NASDAQ:OPEN)’s services. This effect has been particularly important for its U.S. business, which already holds about 1/3 of the market share.
Going forward, the increasing use of mobile phones should provide higher traffic, which added to cost cutting initiatives will make the service more and more attractive for restaurants.
International markets provide further growth opportunities, especially within Europe and Asia. However, increased competition in these geographies will make it harder for OpenTable Inc (NASDAQ:OPEN) to successfully attain the network it holds in the U.S.
Although some are concerned about rising competition, particularly from Livebookings, what really discourages me from buying this stock is its valuation. Trading at 53 times its earnings, it roughly doubles the industry average valuations. However, I would recommend keeping a close eye on how OpenTable Inc (NASDAQ:OPEN) develops; a better valuation could create a highly attractive entry point for long-term investors.
Bottom line
Although all three companies seem to offer compelling long-term growth prospects, OpenTable’s valuation dissuades me from recommending a buy. Shutterfly, Inc. (NASDAQ:SFLY), however, is also valued above its peers but still stands as a buy case due to its upside potential and expected growth for the years to come. Finally, Tripadvisor Inc (NASDAQ:TRIP) stands just in between. Its valuation looks a little more moderate but its future, still very bright; holding two of the strongest brand names in the internet (and fairly moated business models), both Shutterfly, Inc. (NASDAQ:SFLY) and Tripadvisor Inc (NASDAQ:TRIP) seem poised to deliver double-digit earnings-per-share and revenue growth over the years to come. I’d say, buy and hold.
Victor Selva has no position in any stocks mentioned. The Motley Fool recommends OpenTable and TripAdvisor. The Motley Fool owns shares of TripAdvisor.
The article 3 Web-Based Businesses That Profit From Leisure originally appeared on Fool.com and is written by Victor Selva.
Victor is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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