Shares of RDE, Inc., (OTCQB: RSTN) the owner of Restaurant.com, are surging on Monday, two weeks after a bullish report by Goldman Small Cap Research set a six-month price target of $7.50 per share. The analyst initiated coverage on RSTN at roughly $1.00 per share. At press time on Monday, shares are trading at $4.25, up 21 on heavy volume.
Shares in RDE have been hot of late, amassing gains of slightly over 200% in the past three weeks as interest in its services offering yields traction among users and clients. The Goldman SCR analyst sees RSTN as a pioneer in the restaurant deal space and goes further by saying it is the nation's largest and highest-profile restaurant-focused digital deals brand. His bullish thesis is supported by a compelling set of data, using methodological and empirical models to arrive at his bullish conclusion. Attention to what RSTN can do with its brand is starting to stir substantial investor interest.
Notably, RSTN already reaches an estimated 7.8 million customers and offers dining and merchant deal options at over 184,000 restaurants and retailers. RDE expects that that presence will transform the brand into a massive revenue-generating machine. Moreover, as the restaurant industry begins to recover, albeit slowly, from the ongoing pandemic, RDE may be a significant beneficiary to the need for restaurants to attract customers back through their doors. And that could be what's bringing attention to the stock.
Value In A Name
The brand name itself holds substantial value. For comparison purposes, Cars.com sold for $872 million in 2017. Behind that sale was Business.com, which sold for $345 million, and Las Vegas.com, selling for $90 million. Thus, considering that the name Restaurant.com is about as mainstream as a sector brand can get, consider its value to be at the top of the list of domains.
In fact, supposing that Restaurant.com rivals the name value of Cars.com, a similar price tag, and keeping with RSTN's 11.2 million shares outstanding, a case could be made that the asset is worth upwards of $75 per share. The great news is that history can't be debunked. Those other domains sold at those prices. Restaurant.com follows that precedent.
But, while a domain sale could provide a windfall, the reality is is that RSTN is not in business to sell its name. Instead, they are creating potentially massive value by working with B2B partners, with examples being Florida Power & Light, Mercedes Benz, and T-Mobile. Similar deals to drive revenue are expected to be announced as well.
Taking into account those types of B2B deals, Goldman SCR modeled PT estimates by suggesting that revenue could grow from an estimated $3.6M in 2020 to $14.2M in 2022. Operating overhead takes its share, but, at the end of the day, the Goldman analyst believes RSTN can deliver EPS of $0.17 in 2022. That, in turn, gets him closer to his $7.50 in 6 months, up from $4.25 today.
Also, from an industry perspective, shares at $4.25 are considerably undervalued. At current prices, RSTN trades at roughly 4.2x FY21E revenue, which reflects a 63% discount to the 6.6x multiple assigned to the peer group. Assuming the markets address that difference and a similar multiple is applied, shares could push toward the $7.50 price target quickly.
RSTN Make Money By Helping An Industry
Strong gains are welcome to long-sided investors, but RSTN still must produce the models' revenues to reach the loftier goals. To that end, RSTN generates revenue in several ways. The first is transactions based, in which RSTN sells discount certificates for restaurants, complementary entertainment and travel offerings, and consumer products on behalf of third-party merchants. Those offerings generally involve a customer's purchase of a voucher that can be redeemed with a third-party merchant for services or goods (or discounts). If you are familiar with Groupon, you understand the process.
Another way to generate income is through its B2C division, where RSTN takes discounting a bit further and sells deeply discounted, no expiration certificates for its core 14,000 restaurants. These vouchers range in value from $5 to $100. As part of that focus, RSTN also sells Discount Dining Passes, providing discounts at 170,000 restaurants and other retailers. Other programs that can be built into the B2C model could come through "Specials by Restaurant.com" or through bundling of Restaurant.com certificates with various entertainment options, including theater, movies, wine, and travel.
As a part of its B2B division, RSTN focuses its efforts on selling gift cards and codes. Products in its arsenal, like Dining Discount Passes, are targeted to corporations and marketers, which use them for specialized marketing campaigns. The B2B clients use this strategy to attract new customer acquisition, point-of-sale increases, rewards/loyalty, and motivate specific customer behavior. The great news is that RSTN has set up its programs so that no client is priced out of any of the RSTN services. Further, since RSTN already works with B2B partners ranging from small to medium-sized businesses up to Fortune 500 companies, its B2B revenue channel could be a significant value driver in the near term.
Hitting The Bottom Line
RSTN is well-positioned for near and long-term success. They have a powerful, targeted industry programs, and a customer base that is surging. Going forward, RSTN is likely to capitalize from a resurgence in on-site dining as progress to curb COVID-19 gets made. And RSTN is perfectly placed to represent the millions of restaurants that need to recapture an audience that is getting used to delivery service options. Brick and mortar needs RSTN, period. The great news is that the digital services do as well.
There can be no denying that although COVID-19 is wreaking havoc on the restaurant industry now, it will be the one market that can snap back with a vengeance. Everybody eats. And while returning to on-site normalcy will take time, RSTN can also take advantage of a market that has introduced many consumers to the restaurant business's digital side. The growth of in-home delivery service companies, ready to eat meal services, and coupon generating companies each can use the services of RSTN. That could keep RSTN in a sweet spot to accelerate their own growth in the coming weeks and months.
And with more than 1 million restaurant locations in the US and with industry sales expected to top $1.2 trillion by 2030, RSTN may be one of the most successful brands to penetrate a sector that will experience massive growth as the return to normalcy continues. No doubt, RSTN is in the right market at the right time.
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