In afternoon trading on Nasdaq, the shares were changing hands at $33.55, a day after the company raised a more-than-expected $60 million in its IPO. The gains were in contrast to the 2.44 percent decline of wider Nasdaq Composite Index <.IXIC> by late-afternoon.
Shares started trading at a 22.5 percent premium over the $20 IPO price, above the expected range.
It's such a small deal and people are interested in the brand name, plus it's the first real VC-backed IPO by a Silicon Valley firm in a while, said Nick Einhorn, an analyst with Connecticut-based Renaissance Capital.
OpenTable sold a modest 3 million shares, something Einhorn said will make the stock more volatile and could explain its strong debut.
The jump in share price had many analysts scratching their heads as they say the stock may have become ridiculously overvalued and the risks of a big pullback are high.
The company only earned 2 cents per share in the quarter ended March 31, 2009, and lost 10 cents per share in 2008. If it continues to earn at the pace it achieved in the first quarter, the price-to-earnings ratio for 2009 would be around 420 at current prices.
That compares with a prospective price-to-earnings ratio for 2009 of 47 at WebMD Health
This is reminiscent of the 1999-2000 IPO pricings, said Scott Sweet, a senior managing partner with advisory firm IPO Boutique, in a research note.
This IPO environment has not and should not see a pricing like what was chosen, considering the restaurant business is very prone to the recession.
Still, analysts caution that comparisons are difficult given OpenTable's lack of direct competitors. In addition, it has also managed to see sales grow despite the recession.
Once the economy levels and starts to grow again, then OpenTable's growth rate should pick up. In the climate of restaurant closings, it's surprising it generated five quarters of sequential growth, said Francis Gaskins, president of IPO Desktop. OpenTable's revenue rose 35.7 percent in 2008.
The IPO is the first by a U.S. company on Nasdaq this year and the second this week by a venture-backed technology company, following a $151 million deal by network software maker SolarWinds Inc
OpenTable, whose clients include leading restaurants such as New York's Union Square Cafe and Gramercy Tavern, and whose backers include famed restaurateur Danny Meyer and CitySearch founder Tom Layton, said in a filing that it is used by about 10,000 restaurants in the United States.
OpenTable is backed by venture capital firms that include Benchmark Capital Partners and Impact Venture Partners.
This shows the market is getting better and there is pent-up demand from investors that love to buy IPOs, said Bob McCooey, head of new listings at Nasdaq OMX Group
The underwriters, led by Bank of America Merrill Lynch
If OpenTable holds on to its first day gains, it would be the seventh U.S. IPO in a row to see shares jump in their first day of trading.
With a jump of 72 percent, OpenTable is on pace for the best first day performance since Intrepid Potash Inc
(Reporting by Phil Wahba; Editing by John Wallace, Phil Berlowitz and Bernard Orr)