OpenTable IPO Shocks, but Doesn’t Surprise

by Louis Basenese, Advisory Panelist
Senior Analyst, The Oxford Club

Wall Street’s latest scam – the OpenTable IPO – just went down.

I warned yesterday about investing in the OpenTable (Nasdaq: OPEN) IPO.

But after pricing shares 54% above the initial range and tacking on another 45% in the aftermarket, I’m the front-runner for the village idiot award.

Or am I?

As I write, over three million shares have traded hands.

Funny. A quick check of the SEC filing reveals only 3 million shares were offered. That means, roughly every single share that was sold by the company to well-heeled investors (i.e. – not you or me) just got flipped for mega profits to investors like you and me.

Talk about the greater fool theory back in full effect!

And insiders making out like bandits again. Haven’t we been scammed enough to know we need to do our own research and not rely on institutional hype?

I mean how can you rationally expect this stock to head higher for an extended period of time?

It came to market at an ungodly valuation – more than 180 times earnings. (That’s not a typo).

And that’s if we’re charitable. The company was profitable in the first quarter, earning 4 cents per share). But there’s no guarantee it will continue to make money for the rest of the year. It does have a history of losing money for four out of the last five years.

And bets are off if it relapses. After all, you can’t have a P/E ratio without the E (earnings).

Doesn’t anyone remember the sage advice of Warren Buffett: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Of course, the valuation isn’t my only concern, although it’s sufficient.

Remember, the stock is intimately tied to consumer spending, which is hanging out in the gutter. Even if spending miraculously rebounds and we all start eating at Morton’s and Ruth’s Chris’s again, the company’s not going to dominate the world all of a sudden.

I mean in 10 years its bagged one-third of the market for reservation-taking restaurants (impressive), but it still hasn’t figured out how to be consistently profitable. Increasing market share won’t magically make this fundamental business flaw go away.

Bottom line, if you bought into the IPO, I’d consider selling immediately. Pray there’s a greater fool out there to take shares off your hand. Then maybe establish a short position because the fall promises to be historic.

Then again, what do I know?

We’ll continue to see how this plays out…

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