Chinese online travel firm Qunar raises US$500 million in expansion bid, rejects merger with Ctrip
Qunar, operator of China’s most popular mobile and online travel platform, has raised a total of US$500 million in a funding round, with the biggest investor being technology-focused American private equity firm Silver Lake.
Nasdaq-listed Qunar, which is controlled by Chinese online search firm Baidu, said on Tuesday that the new capital will be used to increase its mobile operations, grow business lines and further develop its technology.
The company also said that it had rejected a buyout offer from rival Ctrip, which wanted to acquire all of its outstanding shares. Merger talks between the two have been the subject of wide speculation since last year.
“After careful consideration of such offer, we declined to pursue it,” Qunar said in a letter response to Ctrip, adding though that it remained open to further discussions with Ctrip and others in its sector.
Qunar also announced on Tuesday that it was making a registered public offering of 8 million US dollar-denominated equity shares. This offering represented 24 million ordinary shares valued at US$0.001 per share. Goldman Sachs (Asia) was appointed as book-runner for the offering and Bank of America Merrill Lynch was named co-manager. Qunar said the majority of the net proceeds will be used for general corporate purposes.
The funding announcements came after Qunar reported on Tuesday a 701.2 million yuan (US$113.1 million) net loss for the first quarter, much wider than the 183.6 million yuan loss in the same period last year.
Qunar attributed the greater loss to a 150.7 per cent year-on-year increase in sales and marketing expenses to 327.9 million yuan, a 68.6 per cent year-on-year rise in general and administrative expenses to 132.1 million yuan and a 219.5 per cent year-on-year jump in product sourcing expenses to 124.4 million yuan.
Founded in Beijing in 2005, Qunar generates most of its revenue from advertising, as well as the marketing and technology support services provided to merchants, such as travel agencies, on its platform. It provides users with instant searches of flights, hotels, travel packages, group-buying deals and other travel-related information via its website and mobile applications.
The US$330 million investment by Silver Lake in Qunar was in the form of 2 per cent senior unsecured convertible bonds, with an initial conversion price of US$55 per American Depositary Receipt. An ADR is a negotiable certificate that represents shares of a foreign stock that is traded in a United States exchange and issued by a US bank.
An unnamed investor made a further US$170 million investment in Qunar.
The Qunar deal marked the second-biggest investment by Silver Lake in a Chinese internet company. In 2011, it led a group of companies in a US$1.6 billion investment round in e-commerce giant Alibaba Group. Silver Lake has more than US$26 billion in assets under management and committed capital.
Wang Zheng, a managing director at Silver Lake, expected Qunar’s senior management team to deliver strong growth.
“Chinese consumers are spending more money on travel and are increasingly using mobile devices to book their travel-related activities. We believe the company is well-positioned to address these secular trends,” Wang said.
Total turnover reached 671.1 million yuan, up from 335.5 million yuan, including mobile revenue which rose 275.7 per cent year on year to 398.5 million yuan. Flight and flight-related sales were up 94.3 per cent year on year to 457.3 million yuan. Hotel reservation revenue grew 10.6 per cent year on year to 128.3 million yuan.
Momentum for revenue growth and market share expansion across business lines "remained robust in the first quarter this year as our quarterly gross merchandise volume expanded to over 30 billion yuan for the first time", said Qunar chief executive and co-founder, Zhuang Chenchao.
He said Silver Lake, which has technology-enabled expertise in the travel industry, was an ideal partner for Qunar’s next phase of growth.
“The capital will help the company fuel its rapid expansion and pursue a leadership position in China's travel industry across all segments,” he said.
Alicia Yap, the head of internet research at Barclays, said in a report that Qunar plans to spend the majority of its sales and marketing budget this year on its mobile operations, “given the continuing traffic and revenue shift from PC to mobile”.
That strategy apparently has led Qunar and Baidu to terminate the Zhixin cooperation agreement that they entered into in 2013. This alliance gave Qunar exclusive rights to run the Zhixin platform, which covers airline ticket, hotel and commercial package tour bookings made by desktop online users.
In line with the termination of the Zhixin cooperation, Baidu agreed to pay Qunar a fee of 207 million yuan.
Qunar said that Baidu's undertaking and support for the company, including a non-compete commitment in the travel space, will remain unchanged after the termination of the Zhixin cooperation agreement.
The two companies on Tuesday announced a new business cooperation. Baidu has agreed to grant Qunar exclusive rights to integrate hotel information and products into the desktop online and mobile app versions of Baidu Maps. Qunar will now display location-based hotel data through the Baidu Maps interface. Users can click on the displayed hotels to view hotels and to complete bookings.