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Revolutionizing Restaurant Reservations

OpenTable (OPEN) has made waves with its online reservation tool.

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Revolutionizing Restaurant Reservations

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For years, traditional print media outlets have tried to figure out a way to make money online. As they’ve watched their print ad sales plummet and been unable to recoup those losses in Web ad sales, some have turned to digital subscriptions.

The New York Times has announced that it will begin instituting a paywall for heavy online users starting on Monday. The first 20 articles you read a month on its website will be free, but if you want more, you’ll have to pay extra. Home delivery subscribers will have full, free access to everything the Times offers online.

The Times’ new model not only takes advantage of the company’s website, but also the rising popularity of mobile devices. If you want to read the Times on your computer and smart phone, you’ll pay $15 every four weeks. For the Times on your computer and on a tablet, you’ll pay $20 every four weeks. And for all digital access, you’ll pay $35 every four weeks.

(The Boston Globe, which is owned by the Times, is rolling out a slightly different model in the fall. It’s going to separate free content onto one website and put paid content from the newspaper onto another. I’m curious to see whether this system pans put, both for making money and for keeping content high in Google’s search rankings.)

Some have called the Times’ new fees steep, but I think the content is worth it. To continue to produce high-quality, investigative journalism around the world, the Times needs to have money to pay for the top reporters, photographers, editors and more. If it can’t, the quality of its journalism will plummet and we’ll be left with brief TV news clips and the type of “popular” news that you find on Yahoo.

As a former newspaper editor and an avid news reader, I wish the Times the best in its new endeavor and I hope this can be a model for all high-quality online news in the future.

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Switching gears, I want to discuss a company in a seemingly mundane industry, restaurant reservations, with a revolutionary business model. The company is OpenTable (OPEN) and it’s made waves with its online tool that allows diners to reserve a table at a restaurant without having to pick up the phone.

The company, which has been around since 1998, currently has 20,000 restaurant customers in the U.S. and collects a $1 fee from diners seated from its website and 25 cents if the reservation comes through the restaurant’s website. The company also gets about 10% of reservations from mobile devices. (I’ve long used OpenTable’s website to book reservations, but only recently used the OpenTable iPhone App. It was a great experience and I’ll definitely use it again.)

The company is staying busy, working to expand outside the U.S. In October, OpenTable bought its U.K. competitor Toptable, providing the company with 5,000 new restaurant customers and more than doubling its U.K. presence. International business accounted for 16% of revenue in the fourth quarter. While OpenTable is doing well overseas, it still has a lot of the international market left to tap.

Not being content with merely accepting and managing advance online restaurant reservations, OpenTable has expanded to include a service called Open Connect that steers walk-ins to restaurants that typically don’t do a lot of reservations (think sushi places). The new product has been out for less than a year, but already over 1,000 restaurants are using it.

OpenTable has three other news products, Spotlight, which highlights weekly discounts at featured restaurants, Private Dining, which aids in booking private rooms for events, and Table Maestro, which allows restaurants to better manage phone reservations.

With the economy getting back on track and people eating out more, OpenTable’s fiscal results are improving fast. The company reported that revenue increased 61% to $30.8 million in the fourth quarter versus a year earlier and earnings climbed 136% to 33 cents per share. Analysts predict that OpenTable’s earnings will rise in the double-digits for at least the next several years.

Also in Q4, OpenTable saw its restaurant customers grow 62% to 20,049 and the number of seated diners increase 59% to 19.4 million. And there’s still a lot of room for growth. Of the 35,000 reservation-taking restaurants in its North American market, OpenTable estimates that it seated only 9% of all diners in 2010, up from 6.2% in 2009.

Tim Lutts recommended OpenTable in Cabot Stock of the Month in March and since he advised subscribers to buy, the stock is up about 10%, not bad in a month when the market has seen several large down days. You could buy the stock here and hope for the best, or you could get Tim’s ongoing guidance by subscribing to Cabot Stock of the Month.

(Watch the video below for even more on OpenTable’s recent action.)

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In this week’s Stock Market Analysis Video, Cabot Market Letter Editor Mike Cintolo says that the stock market’s action this week was encouraging, but we still don’t have a buy signal. We want to see the Nasdaq get decisively above its 50-day moving average before diving in. If you’re heavy in cash, you could possibly do a little buying, but be sure to keep some cash and hold only your strongest stocks. And keep your watch list up-to-date with leading stocks like Baidu (BIDU), OpenTable (OPEN), Youku.com (YOKU), Tesoro (TSO) and Molycorp (MCP). Click to watch the video.

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In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.

Cabot Wealth Advisory 3/21/11 – Shelter from the Storm

On Monday, Timothy Lutts discussed how you can find shelter from the storm of the stock market to carefully consider your next investing move. Tim also discussed the importance of finding a system, like Cabot’s proprietary market timing indicators, and sticking to it. Tim also wrote about the benefits of having a watch list and why one little-known Chinese stock should be on yours. Featured stock: Youku.com (YOKU).

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Cabot Wealth Advisory 3/22/11 – Uncertainty is the Name of the Game

On Tuesday, Chloe Lutts discussed the benefits of trivia and why people like activities like crossword puzzles, pub trivia nights and playing along with Jeopardy!. Chloe also discussed the uncertainty in the market and a stock for your watch list. Featured investment: Electronic Arts (ERTS).

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Cabot Wealth Advisory 3/24/11 – AT&T Calling

On Thursday, Paul Goodwin discussed why the AT&T/T-Mobile deal is a bad thing for cell phone customers because it creates less competition, which will drive up prices. Paul also discussed rare earth metals and the role China plays in their production. He finished by discussing a Chinese stock he’s watching closely. Featured stock: 51job (JOBS).

Until next time,

Elyse Andrews
Editor of Cabot Wealth Advisory

Elyse Andrews, is a contributor and former editor of Cabot Wealth Daily, focusing on educational topics on finance, the stock market and individual stocks.