Why Did Priceline Decide To Invest In The Leading Chinese e-Commerce Platform, Meituan-Dianping?

by Trefis Team
+2.57%
Upside
1747
Market
1792
Trefis
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Priceline
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Priceline has recently invested around $450 million in Meituan-Dianping, an e-commerce platform in China. Meituan-Dianping is currently the third largest online consumer market place in China with a 260 million user base. The Beijing-based company has been raising funds with the aim of expanding its presence in the online hotel, restaurant booking, and ride booking businesses. It has raised $4 billion for the same with Tencent, the messaging and games behemoth of China, leading the round. Priceline’s Agoda brand, the booking website focused on Asia, will be in an alliance with Meituan-Dianping’s Travel & Leisure division, the division dealing with domestic and international lodging and transportation for Chinese travelers. To give a context of Meituan-Dianping’s performance, it sold around 18 million room nights to Chinese consumers just in the month of July 2017. Agoda’s platform currently includes around 200,000 international hotels. Agoda’s alliance with Meituan-Dianping is similar in nature to the one shared by Priceline’s Booking.com and Chinese OTA leader, Ctrip. Currently, Booking.com supplies somewhere between 60% to 80% of Ctrip’s hotel inventory from outside China. The deal will help Agoda in gaining a stronger hold in China, while Agoda’s vast platform of hotels will help Meituan-Dianping in expanding its own international presence. We have a $1792 price estimate for Priceline’s stock, which is around 5% lower than the current market price.

Why Might Priceline Be Investing In Meituan-Dianping?

China is one of the most attractive markets in the travel world today. Both Chinese inbound and outbound tourists are among the highest spenders in the world. It is no surprise then, that the leading online travel agencies have always been eyeing on how to get a greater share of the Chinese travel market.

(Image Source: Travel China Guide)

China’s online travel giant, Ctrip, has consolidated the Chinese online travel market place by acquiring around 40% stakes in each of its two closest competitors, eLong and Qunar. Currently, Ctrip is the world’s second largest OTA in terms of market capitalization and it owns around 50% of China’s online travel market bookings. Priceline, the world’s largest OTA, has always been attracted to the China market. Towards that end, Priceline has also made investments in Ctrip and it currently has the option of owning up to 15% of a stake in Ctrip. However, Priceline wants a greater hold of the Chinese market, especially in segments where Ctrip is still striving to gain a stronger hold, that is, the lower tiered cities in China. Hence, Priceline’s investment in Meituan-Dianping, which has an inventory of over 340,000 domestic hotels, mostly in the lower-tiered cities, makes sense for the company. Priceline’s strong cash position makes it a strong contender for making more investments toward expanding its footprints across the world. This deal, therefore, seems like a prudent decision for the online travel leader.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Priceline

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