Meituan-Dianping fattens up for battles ahead

Tencent-backed online-to-offline unicorn, which offers everything from food delivery to travel, sees valuation soar to $30 billion. Now it faces off against a long list of enemies – not least Alibaba.

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 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, 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, 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, Meituan-Dianping’s biggest rival in food delivery services. “Alibaba supported 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.

¬ Haymarket Media Limited. All rights reserved.
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