OpenTable and the Economy

After the market closed today, OpenTable (NASDAQ: OPEN) reported Q4 earnings. It was a blowout quarter. The company beat analyst estimates on virtually every metric (revenue, earnings, net restaurant additions and diners per restaurant). OpenTable’s revenue model is incredibly straight forward and easy to model. The company generates both subscription revenue (reservation system installations) and transactional revenue (per seated diner) and reports total restaurant installations as well as seated diners to the street. As of December 31, OpenTable had 10,850 installed restaurants in the US, seating 11.8 million diners. These numbers imply 12 seats per restaurant per day. This is an important metric for the company, investors and maybe the economy.

While the US equity indexes enjoyed a solid rally today (thanks to hope’s of resolving Greece’s debt issues), OpenTable’s results come on the heels of a miserable month in the equity markets. While the fear of sovereign defaults contributed to bearish sentiment, so too have fears that the global economy has been slow to climb out of recession.

Enter OpenTable. The 12 seats per restaurant per day represents an 11% sequential improvement and 19% year-over-year. Juxtapose this with McDonalds’ January same store sales decline of -0.7% for a moment. What might explain the divergence in results at McDonalds and OpenTable? Consumers dine at McDonalds and restaurants they might find on OpenTable for very different reasons. McDonalds serves burgers for a dollar and is considered “good value”, while consumers willingness to shell out for higher end restaurants found on OpenTable could represent improvement in consumer sentiment.

Before I get carried away, I’ll acknowledge that OpenTable’s network effects / consumer adoption is a more likely driver for the improvement in OpenTable’s seat per restaurant per day metric. The optimists among us can hope OpenTable’s finger is on the pulse of the US consumer … skeptics might want to rotate out of more cyclical stocks and buy some OPEN.