OpenTable ups the ante, at some risk

May 19, 2009

OpenTable, an online restaurant reservation system operator, upped the estimated price range of its initial public offering by 30 percent Tuesday, a daring move considering that the company relies on the ailing restaurant industry for its growth, and last year had a net loss of $1 million despite fast growing sales.

The San Francisco-based company, whose clients include famed restaurants such as New York’s Union Square Café and Gramercy Tavern, and has backers such as Tom Layton ( a co-founder of CitySearch), said in its filing it is used by about 10,000 restaurants in the U.S. but sees a total market of 30,000 eateries.

Backed by venture capital firms including Benchmark Capital Partners and Impact Venture Partners, OpenTable might be betting that its small float – it is selling 3 million shares, half of which are held by existing shareholders– will create strong demand and lead to a first day jump of 40 percent, à la Rosetta Stone last month, and not want to leave too much money on the table, given this rare exit opportunity for VCs.

But Scott Sweet, a managing director at advisory firm IPO Boutique told Reuters: “I believe it will prove to be grossly overpriced” even if they got into those 30,000 restaurants. Even in the original price range, the market cap implies shares selling at five times sales, which Sweet is disproportionate even with its growth trajectory.

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