Priceline Group’s $2.6 billion acquisition of OpenTable, the online restaurant reservations system, was a deal motivated by travelers’ growing propensity for making purchases on the fly and by the opportunity to expand a domestic success story globally.
With more traditional and bigger-ticket online travel sectors such as hotels and airlines reaching maturity in the U.S., and with growth in those areas starting to plateau in regions like Western Europe, Priceline is widening its service reach by making a multibillion-dollar bet on the world’s largest online dining reservation service.
And while Priceline for much of the last decade expanded by acquiring overseas companies, OpenTable, like its most recent buyout target, Kayak, is a U.S. company that is viewed as poised to grow rapidly overseas.
Analysts said last week that Priceline’s global and technological proficiency could help accelerate growth of OpenTable, which was founded in 1998, the same year as Priceline. Its 2013 revenue rose 18% over 2012, to $190.1 million.
“Pre- and intra-travel decisions by individuals will likely become more important to booking choices,” UBS analyst Eric Sheridan wrote in a June 13 note to investors. “And OTAs [online travel agencies] will need to further diversify their models.
He added that with OTAs paying progressively more marketing dollars for booking leads generated by companies such as Google and TripAdvisor, OpenTable might ultimately represent a cheaper way to generate click-throughs.
San Francisco-based OpenTable provides booking services for more than 31,000 restaurants and books reservations for more than 15 million diners per month. Priceline said that OpenTable, which went public in 2009, will continue to operate under its own brand and management after the acquisition.
Jackie Dulen Rodriguez, senior manager at Chicago-based hospitality consultant Technomic, said, “One obvious route for Priceline is to tie restaurant reservations into the overall travel booking process. For example, they could really target business travelers or vacationers based on their hotel location or other itinerary, such as sightseeing tours or theater bookings.”
The acquisition also reflects what some analysts said is a new twist on a long-term strategy of boosting exposure to relatively nascent electronic travel-booking markets overseas as a way to accelerate both revenue growth and brand exposure.
Leading travel review site TripAdvisor recently embraced a similar strategy, albeit on a far smaller scale, when it announced last month that it would acquire European online restaurant reservation provider Lafourchette for an undisclosed price. Lafourchette provides online bookings to more than 12,000 restaurants in Europe.
FBR & Co. analyst Jake Fuller wrote in a June 16 note to investors that Priceline “appears well situated to help OpenTable ramp abroad, drive adoption in a category where penetration is low and ride the mobile wave. OpenTable has struggled to ramp abroad and could benefit from Priceline’s infrastructure, technical expertise and ad skills.”
Among U.S. consumers, Priceline is largely known for celebrity pitchman William Shatner, who has been the face of the operation since its inception. But its acquisitions in ensuing years, particularly of overseas companies, gave it a global market presence and, in 2010, pushed its annual revenue past that of its chief competitor, Expedia.
Most notably, Priceline in 2005 acquired Amsterdam-based Bookings BV (now Booking.com) for $133 million. Two years later, it acquired Singapore-based Agoda.
In late 2012, Priceline announced that it would buy leading travel metasearch company Kayak, which was founded in 2004 and went public in 2011. Analysts said at the time that Priceline, which completed the acquisition last year, was lured by the potential for Kayak to help Priceline get greater market share in European and Asian travel markets, which are far more fragmented than the U.S. market.
That acquisition also stoked further competition with Expedia, which doesn’t have Priceline’s overseas reach but has more than twice Priceline’s market share among Americans. Expedia last year countered Priceline’s Kayak acquisition by acquiring a majority stake in Germany-based metasearch company Trivago for about $630 million.
But whereas Priceline paid about six times annual revenue for Kayak, it is paying almost 14 times OpenTable’s annual revenue. What’s more, it’s paying 46% more than OpenTable’s closing price the day before the announcement, compared with having paid a 29% premium for Kayak.
The high price tag for OpenTable did wonders for shareholders of other companies in food service. Food-delivery company GrubHub’s stock jumped 7% the day the OpenTable acquisition was announced, while shares of the review site Yelp jumped 14%, hinting at the possibility of further buyouts.
Yelp, whose 2013 revenue of $233 million was 23% more than OpenTable’s, debuted its own online food-ordering service last year.
Regardless, with OpenTable generating just 13% of last year’s revenue outside of North America, analysts say the premium Priceline paid may be warranted, especially when that potential growth factor is magnified by the greater propensity for last-minute bookings by smartphone-toting travelers.
“OpenTable is a natural extension for the Priceline Group,” Priceline CEO Darren Huston said in a June 13 conference call detailing the acquisition.
“The asset skills and relationships it takes to win globally in this space are a complementary match.”
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Follow Danny King on Twitter @dktravelweekly.
Photo of restaurant table courtesy of Shutterstock.com.