Yelp Inc (YELP) & OpenTable Inc (OPEN): Online Dining Is Getting Hot

Well OpenTable Inc (NASDAQ:OPEN) may be flattered, but in reality the company can’t be excited about the copycat shops opening up on some of the largest, high traffic websites. SeatMe makes it pretty simple for restaurant owners to compare its service to that of OpenTable. Below lets take a look at the comparison table sourced from SeatMe’s website:

While SeatMe has a long list of benefits versus competitor OpenTable Inc (NASDAQ:OPEN), we will only take a look at a couple of the important distinctions. The first is cost, if you are a small restaurant owner or a recent start up you are almost always cash strapped as the margins within the restaurant space aren’t fantastic. By avoiding a contract, set up fee, cover fees, and web access fees, the owners will be able to redeploy capital into other pieces of their business including the ever critical advertising category.

Second, OpenTable has actively pushed customers to competing restaurants, while this may sound good for revenues, customer loyalty goes out the door. With SeatMe, the restaurant owners are offered an email marketing strategy in which customers are urged for repeat business. Both OpenTable Inc (NASDAQ:OPEN) and SeatMe can be successful, I am not trying to scare any longs out of their position nor bad mouth OpenTable, I just want to make it clear that the competition within the space is definitely heating up.

Wrap-Up

The online dining space is growing increasingly competitive as Yelp Inc (NYSE:YELP), Groupon Inc (NASDAQ:GRPN), and many others are vying for OpenTable Inc (NASDAQ:OPEN)’s customer base. Through SeatMe new restaurant owners can build customer loyalty while avoiding heavy costs during the early stages of operating. The next few years will be exciting for those involved; it’s too early to tell if the online dining space will eventually become as fragmented as the daily deals space.

For the time being I would avoid OpenTable until we have some time to digest the competition. When your dealing with a company trading at 56 times earnings, fears of increasing competition can lead to multiple contraction as it did within the daily deals space a couple years ago. For the shorter-term trade, I like Yelp Inc (NYSE:YELP) on the news, the company has done very well over the last few months and with high short interest, 16.4%, any positive announcements could push the stock higher on the back of short covering.

The article Online Dining Is Getting Hot originally appeared on Fool.com and is written by Nathaniel Matherson.

Nathaniel Matherson has no position in any stocks mentioned. The Motley Fool recommends OpenTable Inc (NASDAQ:OPEN). Nathaniel is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.