Why This Restaurant Stock Skyrocketed

With second quarter earningsbeating Wall Street estimates, OpenTable suddenly became appetizing again.


The news sent its stock soaring more than 15 percent — a welcome relief after its 24 percent slide over the past month and after having lost roughly half its value over the past year.

But despite the euphoria, here are several things to keep in mind:

Revenue growth is continuing to go in the wrong direction. Last month’s 15.4 percent gain reflects a steady decline from the 52.7 percent gain a year earlier. And based on guidance for this quarter of a range from $30.9 million to $40.2 million — flat with last quarter — the growth should be flat, as well.

The story is similar for earnings, which tumbled 9.2 percent in the quarter — its first quarter ever of negative earnings growth.

And while at least one analyst has lifted his rating on the stock, longtime OpenTable bear Brad Safalow of PAA Research hasn’t.

“Over coming days, he said in a report, “we think investors will return their focus on OpenTable’s growth metrics, which in our opinion are showing alarming deterioration.”

Worth noting: the growth in seated diners per restaurant slid to 5.2 percent last quarter from 11 percent in the fourth quarter. OpenTable earns a fee on diners seated through its reservations system.

If nothing else, Safalow said, the slide “highlights an irrefutable (but often overlooked) truth about OpenTable: It is a cyclical company.”

That’s not what a growth investor wants to hear. Pass the Maalox, please.

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