OpenTable: From Hot IPO to Disaster

Back in the summer of 2009, OpenTable (Nasdaq:OPEN) was one of the first dot-com’s to hit the market after the
financial crisis.  It turned out to be a fantastic deal, as the shares spiked nearly 60%.  OpenTable’s online reservation system seemed to have endless growth potential.

Yet it can be extremely tough to keep the momentum going.  And that has certainly been the case this year. Since April, OpenTable’s shares have plunged to $38 from $118.

The problem?  Simply put, OpenTable hasn’t been able meet Wall Street’s overly optimistic expectations.  Even though the company posted a sizzling 40% surge in revenue for the latest quarter, it wasn’t enough – analysts wanted 46%.

For the most part, OpenTable must deal with intense competition.  One rival is IAC’s (Nasdaq:IACI) Rezbook, which has been getting lots of traction lately.  Even Google (Nasdaq:GOOG) is a potential threat, as seen with its recent deal to purchase Zagat.

Interestingly enough, OpenTable is now trying to focus as much as possible on its core business.  To this end, it abruptly ended
its move into the daily-deals business, where Groupon still leads a growing list of competitiors.

For IPO investors, the case is more than just a one-off.  It shows that competition is becoming a serious threat to new companies, and often from major companies.  For example, Groupon must contend with biggies like Google and Amazon.com
(Nasdaq:AMZN).

And even Zynga is facing more pressures, including one from venerable video-game maker Electronic Arts (Nasdaq:ERTS).  Consider that EA’s Social Sims title is now ranked No. 2 on the Facebook platform.

It’s important to be nimble and take the emerging competition seriously.  This is definitely the case when investors are expecting the growth rate to continue for years to come.