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OpenTable Inc. reported earnings of 31 cents per share in first-quarter 2014, which beat the Zacks Consensus Estimate by a penny. EPS (including stock-based compensation) declined 5.6% from the year-ago quarter. The year-over-year decline was attributed to margin contraction.

Quarter Details

Revenues surged 18.2% year over year to $53.8 million and were almost in line with the Zacks Consensus Estimate. Revenues were within management’s guided range of $53.3 to $54.9 million. The year-over-year growth was driven by 26.6% surge in reservation revenues (63.7% of revenues) and 12.9% increase in subscription revenues (30.8% of revenues).

North America revenues jumped 16.5% from the year-ago quarter to $46.0 million, driven by strong growth in both reservation (up 22.3%) and subscription revenues (up 12.4%). Revenues were within management’s guided range of $45.8 to $47.0 million. Rezbook contributed $101K to reservation revenues and $442K to subscription revenues.

Installed restaurants base in North America was 23,862 compared with 19,801 at the end of Mar 31, 2014, which include Rezbook’s 1,967 restaurants. Seated diners (in thousands) were 46,774 compared with 37,356, up 24.0% year over year. Rezbook contributed 1.1 million seated diners in the quarter.

It was noteworthy that, during the quarter, approximately 42.0% of the North American seated diners made reservations through mobile devices. The company’s pilot mobile payments service in San Francisco was well-received during the quarter. The company plans to launch payments service to at least 20 new markets in the second half of 2014.

International revenues increased 28.9% year over year to $7.8 million (toward the high-end of management’s guided range of $$7.5 to $7.9 million), driven by strong growth in both reservation (up 55.5%) and subscription revenues (up 17.0%).

International installed restaurants base was 7,721 compared with 7,829 at the end of Mar 31, 2014. Seated diners were 4,271 compared with 3,088 at the end of Mar 31, 2014, up 38.0% year over year.

Margins

OpenTable reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $20.7 million, which increased 4.4% from the year-ago quarter. This was slightly better than management’s guided range of $18.7 to $20.2 million.

Total operating costs and expenses as percentage of revenues increased 310 basis points (bps) from the year-ago quarter to 81.3%, driven by 270 bps jump in sales & marketing and 170 bps surge in both technology related expenses and operations & support related expenses. These fully offset a 300 bps decline in general & administrative expense.

Operating margin (including stock-based compensation but excluding one-time items) contracted 190 bps from the year-ago quarter to 22.2%, primarily due to higher operating expenses.

Net income (excluding stock-based compensation and one-time items) was $11.0 million or 45 cents compared with $10.7 million or 45 cents reported in the year-ago quarter. EPS were better than the management’s guided range of 39 to 43 cents.

Balance Sheet

OpenTable exited the first quarter with $117.6 million in cash & cash equivalents.

Guidance

OpenTable expects revenues to be in the range of $54.7 to $56.3 million for the second quarter of 2014. North American revenues are expected to be within $47.0 to $48.2 million, while International revenues are likely to be within $7.7 to $8.1 million.

Management expects the average ERB and Guest Center subscription rate to be $242 for the second quarter. OpenTable expects North American other revenues to be approximately $2.6 million for the upcoming quarter.

For the second quarter, adjusted EBITDA is expected to be in the range of $20.1 to $21.9 million. North American adjusted EBITDA are expected to be around $22.2 to $23.4 million, while International adjusted EBITDA loss is likely to be within $2.1 to $1.5 million.

Non-GAAP EPS is expected to be in the range of 43 to 48 cents. The mid-point of the guided range is much higher than the Zacks Consensus Estimate of 35 cents.

For fiscal 2014, revenues are expected to be in the range of $221.9 to $228.1 million (prior guidance $221.0 to $229.0 million). North American revenues are expected to be around $189.7 to $194.3 million (prior guidance $189.0 to $195.0 million), while International revenues are expected in the range of $32.2 to $33.8 million (prior guidance $32.0 to $34.0 million).

For 2014, non-GAAP adjusted EBITDA is expected to be in the range of $83.6 to $89.5 million. North American adjusted EBITDA are expected to be around $88.8 to $93.0 million, while International adjusted EBITDA loss is likely to be within $5.2 to $3.5 million.

Non-GAAP EPS is expected to be in the range of $1.81 to $1.96 (prior guidance $1.71 to $1.92) per share. The mid-point of the guided range is much higher than the Zacks Consensus Estimate of $1.36.

Our Take

OpenTable offers mobile and web solutions that enable users to book restaurant tables. We believe the substantial increase in mobile user base is a significant growth opportunity for the company. The company’s partnership with Facebook (FB - Analyst Report) will drive its market share, going forward.

Moreover, OpenTable continues to expand in the overseas markets, which will boost top-line growth. Additionally, continuing investments in marketing activities will boost traffic, going forward. However, these investments will keep margins under pressure in the near term.

Moreover, increasing competition from Yelp (YELP - Snapshot Report) and the speculated entry of Apple (AAPL - Analyst Report) into the restaurant reservation business may increase competition for OpenTable.

Currently, OpenTable has a Zacks Rank #3 (Hold).

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