Bottom line: Dianping’s major new fund raising is likely to be its last before a New York IPO, which could come as soon as the first half of next year and raise up to $800 million.
I’m having a slight feeling of deja vu today, after reading the latest reports that restaurant ratings and group buying site Dianping has just won a major new funding round worth nearly $800 million. This particular news comes just a week after similar reports came out saying that rival group buying site Meituan was on the cusp of closing a new funding round totaling $700 million, in one of the biggest such private investments for China’s Internet sector this year. Internet watchers will recall that the last time we saw this kind of fund-raising flurry around a single industry came nearly 4 years ago, when investors poured hundreds of millions of dollars into the very same group buying space.
Of course much has changed in the last 4 years, including the disappearance of many former group buying high-flyers that quickly burned through their investment dollars without ever reaching profitability. Meituan and Dianping have emerged as 2 of the industry’s survivors, which is why investors finally feel confident enough to start pouring big new funds into the pair. This kind of mega, late-stage fund-raising is often an indicator of an IPO in the next 12 months, though we’ll look at that part of the story shortly.
First let’s focus on the latest headlines that say Dianping will pump the big new funding into expansion of its existing businesses, which include providing restaurant ratings, and group buying discounts for restaurants, movies and other entertainment products. (Chinese article) The reports don’t provide any additional detail on the investment, though I said at the time of the Meituan fund raising last week that the latest investments probably value both Dianping and Meituan in the $5-$10 billion range. (previous post)
The latest reports do include a few financial metrics for Dianping, which earlier this year received another major investment when it sold 20 percent of itself to Internet giant Tencent (HKEx: 700) for a reported $400 million. The company posted 2 billion yuan ($320 million) in group buying transaction volume in November, with a single-day high in December exceeding 100 million yuan. It has also posted strong growth for its newer business of online reservation booking.
All of that brings us back to the question of what’s next for both Meituan and Dianping, which are both profitable and have emerged as China’s leading group buying sites. Future private funding rounds look unnecessary for both companies, as both are Internet service providers that don’t really require the same kinds of big money for product development and manufacturing that hardware makers need.
The latest reports say the next step for Dinaping would be an IPO, though no time line is provided. Dianping’s founder has previously said he’s in no hurry to make such an offering, and the reports last week on Meituan also indicated the company wasn’t in any rush to make such an offering. Still, both companies must be thinking about such a listing and are almost certain to consider such a move in the new year.
Such an offering would make sense because the current window of positive sentiment towards Chinese Internet companies would help both companies maximize their fund raising and valuation. This year has seen Chinese Internet companies raise a record of nearly $30 billion through New York IPOs, and once the current window of positive sentiment closes it could be another 2-3 years before a similar window opens. Accordingly, both Dianping and Meituan would be foolish not to consider a listing in the first half of 2015, and I personally would bet that the former could be first to market with an offering to raise a hefty sum in the $500-$800 million range.