YELP Yelp Inc

OpenTable Inc.’s (OPEN) recently announced acquisition of Quickcue, which develops guest management system software, reflects the company’s focus on fixing loopholes in its current product offerings.

Quickcue’s solution helps restaurant reception staff to manage tables and waiting times on a real-time basis. Moreover, it helps the restaurant to keep track of the customer preferences and prior visit details. The whole process runs on an Apple (AAPL) iPad.

The acquisition will help OpenTable’s mobile customers to find restaurant vacancies from waiting lists on a real-time basis, a service the company did not offer. OpenTable also announced that it will continue to serve Quickcue’s 40 existing customers.

OpenTable also said that Quickcue will develop new hospitality solutions for walk-in restaurants that also accept reservations. The new solution will further expand OpenTable’s customer base in the long run.

OpenTable is paying $11.5 million in cash for Quickcue, which will not hurt its strong cash balance ($102.8 million at the end of Sep 30, 2013). Additionally, the acquisition is not expected to impact the fourth-quarter and full-year 2013 outlook provided by the company on Nov 5, 2013 (OpenTable Beats on Earnings & Rev).

Acquisitions and partnerships have played an important part in developing OpenTable’s growth trajectory in recent times. During the nine months ending Sep 30, 2013, OpenTable acquired three companies for approximately $24.4 million.

The acquired businesses include Foodspotting Inc. (Jan 2013), Rezbook reservation system from Urbanspoon (Jul 2013) and part of JustChalo Inc. OpenTable also entered into partnership with Facebook (FB), allowing visitors to make reservations directly from the restaurants mobile Facebook page.

We believe that strong cash balance will allow OpenTable to pursue further acquisitions to expand its product portfolio as well as competitive position. The company faces competition from the likes of Livebookings, UReserve and CityEats.

Yelp’s (YELP) acquisition of SeatMe also increased the competition for OpenTable. However, the major concern relates to the speculated entry of Apple into restaurant reservation business. Reportedly, the iPhone maker has recently filed a patent on restaurant reservation and ordering system.

Nevertheless, we believe that the strong growth in mobile user base and expansion in the overseas markets will boost top-line growth. Additionally, continuing investments in marketing activities will boost traffic. However, these investments will keep margins under pressure in the near term.

Currently, OpenTable has a Zacks Rank #2 (Buy).

 
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