OpenTable Braves The IPO Market

Online reservations company OpenTable, headed by Jeff Jordan, the former head of eBay’s North American business and former head of PayPal, filed an S1 to go public and raise $40 million dollars. The company is not under the gun to raise capital like Friendfinder Netwtorks (see write-up here) and I did not find anything in the prospectus indicating why they are braving this challenging market, where they are likely to receive a low valuation for the business.

The company is solidly EBITDA positive with EBITDA margins of 15.8% in the first 9 months of 2008, up 340bps from 12.4% in 2007. Revenues grew 41% and EBITDA grew 80% YoY in the 9 months of 2008, but most of the EBITDA growth and margin increase was due to a pullback in G&A spend, which declined to 20% of revenues in 2008 from 26% of revenues in 2007. [All calculations are adjusted for stock based compensation.] If G&A spend was held constant as a percent of revenues, EBITDA would have only grown 10% YoY. Technology spend increased 70% YoY in the 9 months, due to increased technology headcount to “address website and ERB enhancements, internationalization of our solutions and website, and system control enhancements.”

Surprisingly the model is extremely capex intensive with capex as a percent of sales at 13% in both 2007 and 2008.

The model is holding up well in the recession as subscription revenue per restaurant per month increased to $2253.6 in 2008 from $247.72 in 2007, and revenue per seated diner per month remained flat at $0.08.

Some other facts:
• 292 employees
• 95% of revenues from the U.S.
• Currently in London, Canada, Tokyo, Mexico, France, Germany, and Spain
• $23 million in cash and zero debt
• 9709 installed restaurants (8788 in U.S., 921 int’l)
• Seat 2.8 million customers per month

“We generate substantially all of our revenues from our restaurant customers; we do not charge any fees to diners. Our revenues include installation fees for our ERB (including training), monthly subscription fees and a fee for each restaurant guest seated through online reservations. Installation fees are recognized on a straight-line basis over an estimated customer life of approximately seven years. Subscription revenues are recognized on a straight-line basis during the contractual period over which the service is delivered to our restaurant customers. Revenues from online reservations are recognized on a transaction basis as the diners are seated by the restaurant. Revenues are shown net of redeemable Dining Points issued to diners as described below in "Dining Rewards Loyalty Program."”

“We provide a points-based loyalty program, OpenTable Dining Rewards, to registered diners who book and honor reservations through the OpenTable website. OpenTable Dining Rewards involves the issuance of "Dining Points," which can be accumulated and redeemed for "Dining Cheques." The standard award is 100 points per reservation, but diners can earn 1,000 points for reservations during featured times under the OpenTable Dining Rewards program. When a diner accumulates a minimum of 2,000 points, he or she may redeem them for a $20 Dining Cheque. Every 100 Dining Points is equal to one dollar. Diners may present Dining Cheques at any OpenTable restaurant and their bill is reduced by the cheque amount. The restaurant then deposits the Dining Cheque to its bank.”

“Moreover, the majority of our restaurant customers are located in major metropolitan areas like New York City and the San Francisco Bay Area, and to the extent any one of these geographic areas experiences any of the above described conditions to a greater extent than other geographic areas, the material adverse effect on our financial condition and operating results could be exacerbated. We believe that the total number of reservations, including reservations by phone, seated by our restaurant customers has decreased approximately 10% to 15% for the fourth quarter of 2008 from the same period in 2007.”