Reservations About OpenTable's IPO?

OpenTable, the premier site for online restaurant reservations, is among several companies braving the anemic market for raising capital and giving initial public offerings a shot this week. Smart move or incredibly stupid?

In an effort for full disclosure, I love OpenTable. The delight I feel in making a reservation with the ease of a mouse click - or now finger swipe on my iPhone - replaces the dread I used to face spelling out my ten-letter last name to snotty reservationistas.

Still, as Bloomberg reports, this would only be the fifth tech IPO in as many months this year, a far cry from the tech boom of the late 1990s where five IPOs sometimes took place in as many minutes. OpenTable would be defying the odds.

All Things D's John Paczkowski seems unconvinced. He cites the fact that the restaurant industry is doing terribly in the current recession. True. But Erick Schonfeld over at TechCrunch points out:

Revenues through the nine months ended September 30, 2008 were $41.3 million, a 41 percent increase from the same period in 2007. The company makes money from the restaurants, which pay both subscription fees (54 percent of revenues) and reservation fees for each diner that shows up through the system (42 percent of revenues). It also makes a small amount on installation fees (4 percent of revenues).

Keep in mind those 9 months of 2008 were technically during the recession. And revenues were still up 41 percent pre-recession. That's impressive.

An argument can also be made that OpenTable holds the distinction of being the most dominant online reservation site, by far. It seems, according to Schonfeld's above analysis of their revenues that they have also barely begun to tap the revenue potential of their database of diner preferences. Imagine the value of that data to restaurants - it's analogous to what facebook can sell to companies for marketing based on their users' interests.

So despite the restaurant industry's current troubles, investors should, and probably will, see OpenTable's value in the long term. It's set to price post-close Wednesday.