Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

<ul><li>The two biggest group-buy/O2O players in China, Meituan and Dianping.com, announced a merger on Oct. 8, 2015, with combined valuation of $15 billion.</li><li>Meituan accounted for 52% market share and Dianping.com had 30% in the first half of 2015, according to Analysys. The combined market share will be 82% versus Nuomi's 13.6%, which is Baidu's O2O segment.</li><li>Alibaba, the Chinese e-commerce giant, owns an approximately 10-15% stake in Meituan and also launched its own Koubei site as a joint venture with Ant Financial. Tencent, the Chinese online gaming and social networking giant, acquired a 20% stake in Dianping.com in 2014 and invested in Ele (a takeout delivery site) in early 2015 with Dianping and JD.com together. Baidu, the Internet search giant, wholly acquired Nuomi, the group-buy site at third place, and launched Baidu Takeout. &nbsp;</li><li>Although Baidu doubted the real synergies in this merger in a defense letter after the announcement of this tie-up, we believe the benefits for the combined two parties are obvious. Meituan has strong local presence with a larger than 14,000 salesforce covering more than 1,100 cities, while Dianping.com has a large merchants database (14 million merchants as of second-quarter 2015) and millions of restaurants reviews.</li><li>We consider this deal will make it more difficult for Baidu to find its place in O2O, since the size of its group-buy service is much smaller compared with the combined Meituan-Dianping, which is now backed by both Tencent and Alibaba. However, the O2O battle is still far away from ending.</li></ul>Analysts:&nbsp;Michael Wu, CAIA &amp;&nbsp;Daniel Mueller&nbsp;Full report below the fold...

The two biggest group-buy/O2O players in China, Meituan and Dianping.com, announced a merger on Oct. 8, 2015, with combined valuation of $15 billion.Meituan accounted for 52% market share and Dianping.com had 30% in the first half of 2015, according to Analysys. The combined market share will be 82% versus Nuomi's 13.6%, which is Baidu's O2O segment.Alibaba, the Chinese e-commerce giant, owns an approximately 10-15% stake in Meituan and also launched its own Koubei site as a joint venture with Ant Financial. Tencent, the Chinese online gaming and social networking giant, acquired a 20% stake in Dianping.com in 2014 and invested in Ele (a takeout delivery site) in early 2015 with Dianping and JD.com together. Baidu, the Internet search giant, wholly acquired Nuomi, the group-buy site at third place, and launched Baidu Takeout. &nbsp;Although Baidu doubted the real synergies in this merger in a defense letter after the announcement of this tie-up, we believe the benefits for the combined two parties are obvious. Meituan has strong local presence with a larger than 14,000 salesforce covering more than 1,100 cities, while Dianping.com has a large merchants database (14 million merchants as of second-quarter 2015) and millions of restaurants reviews.We consider this deal will make it more difficult for Baidu to find its place in O2O, since the size of its group-buy service is much smaller compared with the combined Meituan-Dianping, which is now backed by both Tencent and Alibaba. However, the O2O battle is still far away from ending.Analysts:&nbsp;Michael Wu, CAIA &amp;&nbsp;Daniel Mueller&nbsp;Full report below the fold...

Group-Buy Leaders Merged; What Should Baidu Do Next?