Priceline is adding another type of booking to its menu of offerings. The travel site agreed on Friday to buy restaurant reservation service OpenTable for $2.6 billion in cash, or $103 a share. The acquisition promises to help Priceline distinguish itself from other prominent travel sites like Expedia and to capitalize on the dining whims of the millions of weary and hungry travelers who already use Priceline's services.
Booking tables online through OpenTable is free for diners but costs restaurants a monthly fee plus a small payment on each reservation. OpenTable works with more than 31,000 establishments worldwide, of which investment research firm Morningstar reports that 23,900 are in the U.S. This geographic distribution is attractive to Priceline, which has a strong international presence but has been working to grow its domestic network. According to the Wall Street Journal, 80 percent of Priceline's revenue comes from abroad and 80 percent of OpenTable's from the U.S.
On a call with investors Friday, Priceline executives explained that they think the OpenTable acquisition will help Priceline to improve its mobile technology and to tap its existing user base with a new service. "It's important to understand that it's the same customers," said Darren Huston, Priceline's president and chief executive. "Travelers are diners, and in fact, they're some of the most valuable diners because they're transient diners. We believe that there's opportunity to cross-promote OpenTable and the rest of the group's brand to the same customer base."
OpenTable's acquisition is the latest sign that big companies have a growing interest in local marketplaces. Earlier this week, Reuters reported that e-commerce giant Amazon plans to launch a platform for finding local services from babysitting to handymen later this year. Other outlets noted that Amazon has been quietly letting customers write reviews of local restaurants and businesses. And of course there are already sites like Yelp and Zagat that are built around guiding visitors to the best restaurants and attractions in towns and cities across the world.
Morningstar analyst R.J. Hottovy wrote in a note that Priceline's reasoning "has some merit," but he added that the deal might have been overvalued. The purchase price represented a 71 percent premium on Morningstar's $60 fair value estimate, not to mention a 46 percent premium over OpenTable's closing price on Thursday. Morningstar plans to adjust its fair value estimate to reflect the offer price.
Priceline has grown dramatically in the past 10 years with a portfolio that now includes Booking.com and Kayak.com. With OpenTable, Priceline gains the 15 million diners who make restaurant reservations on its platform each month. To be sure, some of those users are probably already Priceline devotees. But for those that aren't, what's better than the promise of a seat at a busy restaurant to make them switch over?