Keeping track on the phenomenal growth of China's online-to-offline (O2O) market – a catch-all covering everything from food ordering and car-hailing to world travel and property rental – is a full-time task. Chinese consumers can't get enough of its convenience – by 2019, O2O companies are projected to generate a staggering $143.6 billion in total sales just from their online stores.
Not surprisingly, investors are as keen as shoppers on this burgeoning sector – no matter how crazy the valuations seem. And a prime example of this hunger for O2O exposure was on show in the latest fundraising by a company that has a hand in just about every corner of the O2O market: Meituan-Dianping.
On Thursday, the company announced it had raised $4 billion in a new fundraising round that valued the business at an eyecatching $30 billion.
It is led by existing backer Tencent and saw a new strategic investor The Priceline Group, a US online travel agent that holds up to 15% of outstanding shares of Ctrip, according to a Zacks Investment Research estimate. Other big-name investors include Sequoia Capital, Singapore government investment vehicle GIC, Canadian pension fund CPPIB, Trustbridge Partners, Tiger Global Management, Coatue Management and China-UAE Investment Cooperation Fund.
The $30 billion valuation represents a significant surge since last year. Meituan-Dianping raised $3.3 billion in a Series F round in January 2016, valuing the Chinese mega unicorn at more than $18 billion. And in July last year, China Resources gave a strategic boost, investing in the firm on undisclosed terms.
With 280 million users, Meituan-Dianping plans to invest in front-line technologies including artificial intelligence and robot delivery, it said in the announcement.
Yet investors are showing exceptional patience with Meituan-Dianping, one of the most powerful start-ups in China yet to go public, after it burnt through billions of dollars.
In October 2015, Groupon-like group buying site Meituan and Yelp-like review platform Dianping.com merged to end a price war against the backdrop of a post-stock market crash malaise that made it difficult for a lot of start-ups to raise further funds.
But confident investors can point to Meituan-Dianping’s ambition to scale further. Wang Xing, the founder of Meituan who now co-chairs the O2O superpower, told Caijing in a June interview that Meituan-Dianping “has the room to grow twice to three times”. “China has 700 million netizens, Meituan-Dianping now [in June] has 240 million active buyers and Alibaba 450 million,” he said, using the latter as a benchmark.
Rivals in every vertical
In part, that explains why it is moving beyond a group purchase site to venture into sectors including movie ticketing, food delivery, and online travel. Recently, it went into ride-hailing, payments and even started to open up retail stores – all part of Wang's plan to create what he dubbed a complete infrastructure for services.
But while it is winning friends with investors, Wang's plan is pumping up a rivalry with China’s top e-commerce and tech giants.
In ride-hailing, there is Didi Chuxing, a $50 billion unicorn backed by almost every big-name investor in China as well as Softbank. In online travel, Meituan-Dianping has to deal with Ctrip. In short-term housing rental, there is Tujia.com, backed by Ctrip, as well as Airbnb.
Alibaba is arguably the most powerful foe. It invested in Meituan prior to the 2015 merger with Tencent-backed Dianping, but had been selling down its stake since that deal. Instead, it has invested heavily in food delivery platforms Ele.me, e-commerce marketplace Koubei and online ticketer Tao Piao Piao.
Alibaba and its fintech affiliate Ant Financial invested $900 million and $350 million in April last year, respectively, in Ele.me, Meituan-Dianping’s biggest rival in food delivery services. “Alibaba supported Ele.me at all cost in order to create trouble for us,” Wang said in June.
The e-commerce behemoth still held “some” stake in Meituan-Dianping which it wouldn’t clear, “probably in order to cause us trouble in the future,” Wang added.
For the $30 billion giant, more money has arrived, and war is set to continue.