The Short Thesis on OpenTable (OPEN) ~ market folly

Wednesday, October 27, 2010

The Short Thesis on OpenTable (OPEN)

Valuehuntr has posted up a quick short thesis on OpenTable (OPEN). We wanted to highlight this because a few hedge funds have been short this stock so it's always good to take a better look at the thesis behind it. In particular, Whitney Tilson's T2 Partners has mentioned their short in OPEN publicly numerous times.

Taken from Google Finance, Open Table is "provides solution that forms an online network connecting reservation-taking restaurants and people who dine at those restaurants. Its solutions include its Electronic Reservation Book (ERB), for restaurant customers and, a restaurant reservation Website for diners. The OpenTable network includes approximately 12,000 OpenTable restaurant customers spanning all 50 states, as well as select markets outside of the United States."

In short (no pun intended), Valuehuntr suggests that OpenTable is trading at a very rich multiple and is trading at more than 2x their market size. The analysis outlines an extreme set of expectations for the stock in an industry with no real barriers to entry. OPEN currently trades at around $60 and Valuehuntr theorizes that the company is more realistically worth between $15-20 per share, leaving ample room for downside.

As with any short, there are also risks which they identify as a dramatic increase in their online userbase, potential out-performance in their upcoming earnings report, as well as a possible increase in market capacity.

Embedded below is the short thesis on OpenTable, courtesy of Valuehuntr:

You can download a .pdf copy here.

We would mention not to place too much emphasis on the section comparing OPEN to other companies as there's no true comp for the stock. Their analysis compares it to internet travel companies while OPEN is an internet dining reservation company, so it's difficult to determine relative valuation. Overall though, outright over-valuation for the specific company's prospects seems to be the driving force behind this short thesis so we'll have to see if there's any major catalyst behind it.

For potential hedge fund theses on other short positions, we recently highlighted David Einhorn's short position in St. Joe (JOE). You can also scroll through our coverage of other hedge fund shorts here.

blog comments powered by Disqus