On October 19th, 2017, Meituan-Dianping raised $4 billion in its 9th funding round as part of its strategy to compete with the country’s leading e-commerce firms in offline retail. This values China’s largest on-demand services provider at $30 billion. A $30 billion valuation places Meituan-Dianping as the fourth most valuable startup of the world, after Uber Technologies Inc, Didi, and Chinese smartphone maker Xiaomi Corp and before Airbnb and SpaceX.
Meituan-Dianping is China's pioneer of O2O (Online To Offline), an online platform for a range of services including movie ticketing, food delivery, restaurant bookings, beauty services, travel, and luxury goods. With over 200 million accumulated users, it is an indispensable smartphone app for Chinese consumers and the most powerful online partner for local businesses. It has 75 million monthly active users, over 28 million reviews, and more than 6 million local businesses covering approximately 2,300 cities across China.
In January 2006, Dianping received an investment of $2 billion from Sequoia Capital in its first round of financing. Today, Dianping has successfully reached its 9th stage of funding. Last month´s round was led by existing backer Tencent Holdings and Priceline Group, a Connecticut-based travel company who joined after Meituan-Dianping’s expansion last year into hotel and travel booking services. The Priceline Group argues that the investment will help the companies capitalize on the opportunities presented by China's exceptionally large travel market. Other participants in this financing round include Sequoia Capital Ltd, Trustbridge Partners, IDG Capital Partners, Coatue Management, Capital Group, and Canada Pension Plan Investment Board. Competition to invest in Meituan-Dianping is significant. Not only has the number of investors increased, but also previous investors are investing again in the company, like Tencent Holdings and Canada Pension Plan Investment Board.
This funding round comes as part of a strategy to compete with the country’s leading e-commerce firms in offline retail. The biggest competition comes from Ele.me, owned by Alibaba, which earlier this year acquired a food delivery business from Baidu Waimai, another Chinese O2O. Baidu Waimai has been increasing the number of its offline stores in recent years, driven by developments in cloud computing and big data technology. This competition drove Meituan-Dianping to make moves of its own. Meituan-Dianping plans to invest the raised capital in its in-store dining, lifestyle and entertainment, on-demand delivery, and travel and leisure units. Travel is becoming the latest competitive ground, and Meituan-Dianping plans to spend hundreds of millions of dollars over the next three to five years to become a leading travel booking site. Moreover, Meituan-Dianping plans to invest in AI, develop data analysis and technology in logistics, and invest in other technologies that help tailor its wide selection of deals to suit individual user tastes.
In July, Meituan-Dianping’s VP of Strategy declared that the firm was not considering an IPO until it had developed infrastructure for services including offline retail. He also announced that the company had approximately $3 billion in cash reserves remaining from a previous funding round. It looks like this $4 billion funding round is a definite step towards developing that infrastructure.
The trend of enthusiasm that we are witnessing for Chinese tech startups exists despite warnings from some investors of a potential bubble. For example, the same week Meituan-Dianping raised $4 billion, online lender Qudian increased its share value by 40% on its opening day on the NYSE. Additionally, Didi Chuxing raised $5.5 billion this year, which values it at $50 billion. Three of the five most valuable startups on the planet (Didi, Xiaomi and Meituan-Dianping) are now Chinese. Pogson, EY´s partner, has warned that these valuations may be getting a bit overheated. Shares of private companies like Meituan and Uber aren’t traded in liquid markets every day, so valuations change only rarely and typically go up. In addition, many of the fundraisings in China and the U.S. are done with ratchets, or protections, so that investors get compensation if the valuations fall later on.