OpenTable Inc. (OPEN) reported earnings of 47 cents per share in the fourth quarter of 2013, which comprehensively beat the Zacks Consensus Estimate by 7 cents and surged 39.5% from the year-ago quarter. The strong year-over-year growth was driven by robust top-line performance.
However, shares plunged 9.2% ($6.91) in after-hours trading. We believe that the sell-off is unwarranted given the strong fourth-quarter results and positive outlook for the upcoming quarter and fiscal 2014.
Quarter Details
Revenues rose 21.7% year over year to $52.3 million and were better than the Zacks Consensus Estimate of $51.0 million. The year-over-year growth was driven by 32.7% surge in reservation revenues (62.1% of revenues) and 12.2% increase in subscription revenues (31.2% of revenues).
North America revenues grew 21.9% from the year-ago quarter to $44.7 million, driven by strong growth in both reservation (up 30.2%) and subscription revenues (up 12.5%). OpenTable’s third-quarter acquisition of Rezbook contributed $135K to reservation revenues.
Installed restaurants base in North America was 23,824 compared with 19,801 at the end of Dec 31, 2013, which include Rezbook’s 2,281 restaurants. Seated diners were 39,770K compared with 29,861K, up 33.2%. Rezbook contributed 1.1 million seated diners in the quarter.
It was noteworthy that, during the quarter, approximately 40.0% of the North American seated diners made reservations through mobile devices. The company also announced that it has launched a pilot of a mobile payments service in San Francisco, which will help diners to pay for the meal.
International revenues increased 20.5% year over year to $7.6 million, driven by strong growth in both reservation (up 47.3%) and subscription revenues (up 10.2%). International installed restaurants base was 7,729 compared with 7,716 at the end of Dec 31, 2013. Seated diners were 4,241K compared with 2,971K at the end of Dec 31, 2012, up 42.7% in the quarter.
OpenTable reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $22.5 million, which increased 19.6% from the year-ago quarter.
Total operating costs and expenses as percentage of revenues increased 60 basis points (bps) from the year-ago quarter to 74.7%, driven by 280 bps jump in sales & marketing and 190 bps surge in technology related expenses. These fully offset 360 bps and 50 bps plunge in general & administrative expense and operations & support related expenses, respectively.
Operating margin (including stock-based compensation but excluding one-time items) expanded 70 bps from the year-ago quarter to 28.2%, primarily driven by higher revenue base. Net income margin increased 330 bps from the year-ago quarter to 21.6%.
OpenTable exited the fourth quarter with $114.5 million in cash & cash equivalents.
Acquisition
OpenTable announced that it is acquiring start-up Ness Computing, for approximately $17.2 million in cash, or $11.3 million net of estimated cash. Ness develops personalized restaurant recommendation application, which post integration with OpenTable’s current product offerings will attract more restaurant customers, going forward.
Guidance
OpenTable expects revenues to be in the range of $53.3 to $54.9 million for the first quarter of 2014, the mid-point of which is slightly better than the Zacks Consensus Estimate of $54.0 million. North American revenues are expected to be within $45.8 to $47.0 million, while International revenues are likely to be within $7.5 to $7.9 million.
Management expect the average ERB subscription rate to be $244 in the first quarter. OpenTable expects North American other revenues to be approximately $2.5 million in the upcoming quarter.
For the first quarter, adjusted EBITDA is expected to be in the range of $18.7 to $20.2 million. North American adjusted EBITDA are expected to be around $20.5 to $21.7 million, while International adjusted EBITDA loss is likely to be within $1.5 to $1.8 million.
Earnings are expected to be in the range of 39 cents to 43 cents per share. The mid-point of the guided range is in line with the Zacks Consensus Estimate of 41 cents.
For fiscal 2014, revenues are expected to be in the range of $221.0 to $229.0 million. The mid-point of the guided range is much better than the Zacks Consensus Estimate of $222.0 million.
North American revenues are expected to be around $189.0 to $195.0 million, while International revenues are expected in the range of $32.0 to $34.0 million.
For 2014, adjusted EBITDA is expected to be in the range of $82.7 to $90.4 million. North American adjusted EBITDA are expected to be around $88.0 to $93.8 million, while International adjusted EBITDA loss is likely to be within $3.4 to $5.3 million.
Non-GAAP operating expenses are expected to increase in 2014, driven by higher headcount expenses (up $8.0 million year over year) and marketing expenses (up $9.0 million year over year).
Earnings are expected to be in the range of $1.71 to $1.92 per share. The mid-point of the guided range is much higher than the Zacks Consensus Estimate of $1.77.
Our Take
OpenTable offers mobile and web solutions that enable users to book restaurant tables. We believe the substantial increase in mobile user base is a significant growth opportunity for the company, going forward.
Moreover, OpenTable continues to expand in the overseas markets, which will boost top-line growth. Additionally, continuing investments in marketing activities will boost traffic, going forward. However, these investments will keep margins under pressure in the near term.
Currently, OpenTable has a Zacks Rank #2 (Buy). Other stocks that are performing well at current levels include Descartes Systems (DSGX), Zillow Inc. (Z) and Nuance Communications (NUAN). All these sport a Zacks Rank #1 (Strong Buy).
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