Alibaba to sell stake in China O2O services platform

The company and its affiliate Ant Financial announced last year that they would invest nearly $1 billion in a joint venture called Koubei and initially focus on food-related services. During the three months ended December 2015, Koubei generated transactions worth RMB15.8 billion ($2.4 billion) in gross merchandise value (GMV) through Alibaba's Alipay payment platform, with five million orders per day.

"When it comes to which horse we're backing, clearly Koubei is the horse that we're going to back. We've had a very successful financial investment in Meituan, but we believe that a better allocation of our capital is to put our resources into Koubei, and exiting Meituan is just a matter of time," Joe Tsai, Alibaba's executive vice chairman, told analysts on the company's most recent earnings call.

The Wall Street Journal reported that Alibaba has already agreed a $900 million deal to sell its stake at a discount to the most recent valuation because she shares have less downside-protection rights. This protection is usually structured as a ratchet, whereby investors receive additional shares if a company goes public at a valuation below their entry valuation.

Alibaba first invested in Meituan in 2011, participating in a Series B round alongside Sequoia Capital, Walden International and Northern Light Venture Capital. Four years and two rounds later, Meituan was raising $700 million at a valuation of $7 billion. Meanwhile, rival platform Dianping - in which Tencent Holdings was the largest shareholder - achieved a valuation of $4 billion with a $850 million round.

Last October, the companies announced they would merge. This came against a backdrop of uncertainty about the sustainability of internet companies' business models. Investors have been reluctant to commit more capital to a battle for market share defined by how much can be offered in subsidies to consumers and merchants. Each company was reportedly burning through about $1 million per day.

Earlier this month, the new Meituan-Dianping entity confirmed it had raised $3.3 billion from investors including Tencent, DST Global and Temasek Holdings. The valuation was said to be $18 billion. Didi Dache and Kuaidi Dache - two ride-hailing app operators backed by Tencent and Alibaba, respectively, alongside other investors - achieved a $15 billion valuation over the summer following a similar merger.

Through a combination of paid listings and discount offers, Meituan-Dianping provides restaurant reviews, group-buying services, hotel reservations, movie ticket booking and food delivery. According to local media, the company is expected to achieve RMB184 billion in GMV in 2015, rising to more than RMB1 trillion by 2019.

Baidu has launched its own delivery service while there are several independent players that have received substantial funding, such as food-ordering and delivery platform Ele.me and 58 Daojia, which connects consumers with individual service providers. Tsai noted that, although the O2O market is seeing some consolidation, it remains a $1 trillion opportunity and Koubei has good growth trajectory.

"You should expect that our investments are not going to be - we're not going to be looking at quarter-to-quarter sort of results from our investments, but we're looking at a long-term, several-year, multi-year kind of outcome on this. And we feel very positive about the long-term prospects of this business," he said.

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• Topics
• Greater China
• Consumer
• Technology
• Trade sale
• China
• TMT
• Consumer
• Exit
• Alibaba Group