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This is an interesting opportunity to profit from. This company has massive expectations baked into it's stock price (NASDAQ: OPEN), trading at over a hundred t

by d2viant 16y ago

This is an interesting opportunity to profit from. This company has massive expectations baked into it's stock price (NASDAQ: OPEN), trading at over a hundred times earnings. It's being massively shorted by the hedge funds. Combine the fact that there's relatively no barrier to entry with the rumors that their customer base isn't very satisfied makes for a huge opportunity to profit in the short/medium term.

jakarta 16y ago
That's basically the essence of capital cycle theory isn't it? Wherever you see high valuations and high returns on capital, competition is bound to come in, which gradually reduces returns and valuations.
krosaen 16y ago
No barrier to entry? Don't they outfit each customer with a complete table management system including the hardware?
- d2viant 16y ago
  That's not a huge barrier though. The restaurant didn't have some outlay of capital for that hardware that is going to motivate their decision to switch. When they cancel their OpenTable contract, they'll just send the hardware back. This seems like an opportune space for a startup to compete in. You could easily sell the online reservation service for a fraction of what OT is charging and just skip the hardware nonsense. The hardware and table management system could be a separate product or service.
  - krosaen 16y ago
    I would hope so, but I remember reading that the hardware was one of the keys to their success; "here plug this in, it will do your table management. And by the way, people can make reservations now too." Maybe now a competitor could get by just having a really good ipad app for the restaurants (is this what urban spoon's rez is?)
    - d2viant 16y ago
      Here's what I'm thinking. I'm already working on a startup, so I'll give this one away for free. Build the web app portion that allows reservations to be made from the customers perspective, just like they have now. Integrate it with Twilio so that the restaurant receives an automated call and can confirm/deny the reservation on their end, without having to deal with a bunch of new hardware. You just tell them that they're going to receive a phone call with the reservation information and the options. There's little or no training required on their side, no additional hardware, minimal integration, no new systems. It's a more organic transition for a restaurant when you're trying to talk them into becoming a customer.
      - aplusbi 16y ago
        OpenTable is 24/7 and from the customer's perspective, instantaneous. A phone-based backend would not be able to compete.
      - sshumaker 16y ago
        You're missing half of the equation - It's not just the act of performing the reservation, it allows customers to search for to see if which restaurants have availability (and at what time). You can't do that unless you have access to all of their seating data, including walk-ins.
        stevenwei 16y ago
        Yup, and accessing table availability requires integrating with the restaurant's point of sale system so you can track when tables are getting seated and cleared. Innovating technology wise in the restaurant space is pretty tough cause sooner or later you're going to hit the wall of having to integrate with a dozen or more point of sale providers, no matter what you're trying to do (mobile/online ordering, reservation/waitlist systems, reporting systems, etc). Oh, and because of their incredibly low profit margins, most restaurants can't afford to buy this type of tech. And the ones that do typically keep it for 5+ years between upgrades.
  - stevenwei 16y ago
    The other big barrier is integrating their reservation system with whatever point of sale system the restaurant is using. (Of which there are many. All with different SDKs. Most of which cost lots of money to get access to). A reservation/waitlist system that doesn't interact with the restaurant's point of sale system is mostly pointless as you need to be able to track real time table availability.
gphil 16y ago
> It's being massively shorted by the hedge funds. Just out of curiosity, who are "the hedge funds" and how do you know this? Is there some way of researching who is shorting what?
- d2viant 16y ago
  I've been following this company for awhile from a financial perspective, which is how I know. The most prominent hedge fund to short has been Whitney Tilson's T2 Partners', but they're just one among many -- 35% of the floated stock is short now. I don't know of any way to research who is shorting what other than SEC filings. Mutual/Hedge funds have to report this information on a quarterly basis.
  - chipsy 16y ago
    There are a few common signs in institutional shorting, that may be used to determine short interest in absence of official filings, share counts, or other data, but they mostly require a low-volume market to see clearly: The accumulation/distribution line is strongly inverse to price(It's an indicator based on buy/sell volume. Normally, an accumulation precedes price rise while a distribution is in tandem with a selloff. When shorting, the long-term trend goes the opposite way - there's more buying than selling, yet price consistently drifts down. Caveat: being based on a composite of price/volume/time, it's not totally accurate and even changes dramatically across time scales. ) Market-maker quotes on Level II behave unusually in response to buys or sells(on small, low-volume stocks in particular, MMs are sometimes colluding forces and will "paint the chart" with tiny trades that, in a fair market, would not affect quotes). Message boards for the ticker symbol suddenly see the appearance of paid bashers who will repeat negative news multiple times a day. --- With a lot of heavily shorted stocks, the company is fundamentally weak to begin with. However, even a very solid company is vulnerable if it's starting from a low market cap. So - in general - take the appearance of a large short position as a sign to either join them or get out. To see a short squeeze the float has to be very tight, and the stock needs to be forced into a speculative frenzy with good news or just big buyers. The long-run odds always favor companies failing. OPEN is a big-board stock with a large valuation and volume right now, so I wouldn't expect shorts to be obvious enough that you can see these indicators. As well, their dirtiest tricks are reserved for pennies. They have the lowest risk there, since market cap is so small that they can absorb most price rises.
herdrick 16y ago
> no barrier to entry There's a pretty big network effect.
- waterlesscloud 16y ago
  You only have to take this on in a particular market to start. It makes no difference that OT has restaurants in NYC if you're competing in SF.
danielharan 16y ago
Is it legal to short a company and enter the market with an OSS solution or other competitive offer?
- scottrafer 16y ago
  Yes, it's legal.
stevenwei 16y ago
I think people generally underestimate the sales challenges associated with selling tech to restaurants. Restaurant owners are too busy running their restaurants to be looking for this stuff themselves. That's why Groupon, Yelp, and OpenTable all have massive sales forces dedicated to finding and acquiring new restaurants. This costs money. The same pretty much applies to every other restaurant technology company, ever. (Particularly point of sale companies.)
- smackfu 16y ago
  It's also worth noting that the $10.04 in the article includes a portion of the startup fees. So dropping OpenTable for some new solution wouldn't necessarily make financial sense since you would need to pay the startup fees for the new solution. And retrain your staff, etc. It's debatable whether the startup fees should be included in the per-table cost anyways, given that is a sunk cost.

by d2viant 16y ago

jakarta 16y ago

That's basically the essence of capital cycle theory isn't it? Wherever you see high valuations and high returns on capital, competition is bound to come in, which gradually reduces returns and valuations.

krosaen 16y ago

No barrier to entry? Don't they outfit each customer with a complete table management system including the hardware?

d2viant 16y ago
That's not a huge barrier though. The restaurant didn't have some outlay of capital for that hardware that is going to motivate their decision to switch. When they cancel their OpenTable contract, they'll just send the hardware back. This seems like an opportune space for a startup to compete in. You could easily sell the online reservation service for a fraction of what OT is charging and just skip the hardware nonsense. The hardware and table management system could be a separate product or service.
- krosaen 16y ago
  I would hope so, but I remember reading that the hardware was one of the keys to their success; "here plug this in, it will do your table management. And by the way, people can make reservations now too." Maybe now a competitor could get by just having a really good ipad app for the restaurants (is this what urban spoon's rez is?)
  - d2viant 16y ago
    Here's what I'm thinking. I'm already working on a startup, so I'll give this one away for free. Build the web app portion that allows reservations to be made from the customers perspective, just like they have now. Integrate it with Twilio so that the restaurant receives an automated call and can confirm/deny the reservation on their end, without having to deal with a bunch of new hardware. You just tell them that they're going to receive a phone call with the reservation information and the options. There's little or no training required on their side, no additional hardware, minimal integration, no new systems. It's a more organic transition for a restaurant when you're trying to talk them into becoming a customer.
    - aplusbi 16y ago
      OpenTable is 24/7 and from the customer's perspective, instantaneous. A phone-based backend would not be able to compete.
    - sshumaker 16y ago
      You're missing half of the equation - It's not just the act of performing the reservation, it allows customers to search for to see if which restaurants have availability (and at what time). You can't do that unless you have access to all of their seating data, including walk-ins.
      - stevenwei 16y ago
        Yup, and accessing table availability requires integrating with the restaurant's point of sale system so you can track when tables are getting seated and cleared. Innovating technology wise in the restaurant space is pretty tough cause sooner or later you're going to hit the wall of having to integrate with a dozen or more point of sale providers, no matter what you're trying to do (mobile/online ordering, reservation/waitlist systems, reporting systems, etc). Oh, and because of their incredibly low profit margins, most restaurants can't afford to buy this type of tech. And the ones that do typically keep it for 5+ years between upgrades.
- stevenwei 16y ago
  The other big barrier is integrating their reservation system with whatever point of sale system the restaurant is using. (Of which there are many. All with different SDKs. Most of which cost lots of money to get access to). A reservation/waitlist system that doesn't interact with the restaurant's point of sale system is mostly pointless as you need to be able to track real time table availability.

gphil 16y ago

> It's being massively shorted by the hedge funds. Just out of curiosity, who are "the hedge funds" and how do you know this? Is there some way of researching who is shorting what?

d2viant 16y ago
I've been following this company for awhile from a financial perspective, which is how I know. The most prominent hedge fund to short has been Whitney Tilson's T2 Partners', but they're just one among many -- 35% of the floated stock is short now. I don't know of any way to research who is shorting what other than SEC filings. Mutual/Hedge funds have to report this information on a quarterly basis.
- chipsy 16y ago
  There are a few common signs in institutional shorting, that may be used to determine short interest in absence of official filings, share counts, or other data, but they mostly require a low-volume market to see clearly: The accumulation/distribution line is strongly inverse to price(It's an indicator based on buy/sell volume. Normally, an accumulation precedes price rise while a distribution is in tandem with a selloff. When shorting, the long-term trend goes the opposite way - there's more buying than selling, yet price consistently drifts down. Caveat: being based on a composite of price/volume/time, it's not totally accurate and even changes dramatically across time scales. ) Market-maker quotes on Level II behave unusually in response to buys or sells(on small, low-volume stocks in particular, MMs are sometimes colluding forces and will "paint the chart" with tiny trades that, in a fair market, would not affect quotes). Message boards for the ticker symbol suddenly see the appearance of paid bashers who will repeat negative news multiple times a day. --- With a lot of heavily shorted stocks, the company is fundamentally weak to begin with. However, even a very solid company is vulnerable if it's starting from a low market cap. So - in general - take the appearance of a large short position as a sign to either join them or get out. To see a short squeeze the float has to be very tight, and the stock needs to be forced into a speculative frenzy with good news or just big buyers. The long-run odds always favor companies failing. OPEN is a big-board stock with a large valuation and volume right now, so I wouldn't expect shorts to be obvious enough that you can see these indicators. As well, their dirtiest tricks are reserved for pennies. They have the lowest risk there, since market cap is so small that they can absorb most price rises.

herdrick 16y ago

> no barrier to entry There's a pretty big network effect.

waterlesscloud 16y ago
You only have to take this on in a particular market to start. It makes no difference that OT has restaurants in NYC if you're competing in SF.

danielharan 16y ago

Is it legal to short a company and enter the market with an OSS solution or other competitive offer?

scottrafer 16y ago
Yes, it's legal.

stevenwei 16y ago

I think people generally underestimate the sales challenges associated with selling tech to restaurants. Restaurant owners are too busy running their restaurants to be looking for this stuff themselves. That's why Groupon, Yelp, and OpenTable all have massive sales forces dedicated to finding and acquiring new restaurants. This costs money. The same pretty much applies to every other restaurant technology company, ever. (Particularly point of sale companies.)

smackfu 16y ago
It's also worth noting that the $10.04 in the article includes a portion of the startup fees. So dropping OpenTable for some new solution wouldn't necessarily make financial sense since you would need to pay the startup fees for the new solution. And retrain your staff, etc. It's debatable whether the startup fees should be included in the per-table cost anyways, given that is a sunk cost.