Shares of OpenTable Inc
The stock ended up $11.89 at $31.85 on Nasdaq, a day after the company raised a more-than-expected $60 million in its IPO. The gains were in contrast to the 1.89 percent decline of the wider Nasdaq Composite Index <.IXIC>.
The stock started trading at a 22.5 percent premium over the $20 IPO price, which was above the expected range, reaching an intraday high of $35.50.
It's such a small deal and people are interested in the brand name, plus it's the first real VC (venture capital)-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 stock's run-up had many analysts scratching their heads and saying it may be ridiculously overvalued, with a high risk of a big pullback.
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.
Gaskins called OpenTable's jump over the top.
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
OpenTable's deal is the seventh U.S. IPO in a row to see its shares jump on their first day of trading, and the seventh on a U.S. exchange in 2009.
With a jump of 59 percent, OpenTable had the best first day performance since American Public Education Inc
(Reporting by Phil Wahba; Editing by John Wallace, Phil Berlowitz, Bernard Orr, Richard Chang)