‘Baidu nails it again on travel’: Chinese search engine wins from huge share swap between rivals Ctrip and Qunar as industry consolidation continues

China’s online travel market estimated to grow to US$75 billion by 2017 from US$55 billion this year

PUBLISHED : Tuesday, 27 October, 2015, 3:23pm
UPDATED : Tuesday, 27 October, 2015, 5:33pm

Chinese online search giant Baidu emerged as the biggest winner from the blockbuster share swap on Monday between Ctrip.com International and rival Qunar, the country’s two largest online travel services providers.

Analysts said that transaction will enable Baidu to quickly expand its online-to-offline (O2O) business as its Maps, Wallet and Nuomi group-buying services are integrated into both Ctrip and Qunar’s platforms.

Alicia Yap, the head of China internet research at Barclays, said in a report on Tuesday that Baidu now has “the most exposure to the China travel industry” among the country’s top internet industry players, which include Alibaba Group and Tencent Holdings.

READ MORE: Baidu-backed travel services provider Qunar brings more Chinese hotels online as network nears completion

Baidu on Monday completed the exchange of its equity stake in Qunar - 178.7 million Class A shares and 11.45 million Class B shares - for 11.49 million newly issued shares of Ctrip. All three companies are listed on the Nasdaq stock market.

The share exchange ratio represented a 36 per cent premium to Qunar’s closing price last Friday, which valued the company at about US$7 billion.

That deal makes Baidu the largest shareholder in Ctrip, with its 25 per cent interest. Ctrip now owns 45 per cent of Qunar and becomes its former rival’s main shareholder.

In June, Qunar said it had raised US$500 million in funding and said it had rejected a buyout offer from Ctrip, which wanted to acquire all of its outstanding shares.

Now Beijing-based Baidu and Ctrip have agreed on business cooperation across a broad base of products and services. Baidu will also maintain its existing business alliance with Qunar.

“Baidu nails it again on travel,” Yap said. She pointed out that Baidu’s decision in July 2011 to buy a 62 per cent stake in Qunar for US$306 million has led to its increased participation in a high-growth O2O market segment.

“While travel has not been a high-frequency service, it provides higher average selling price. It has more attractive transaction fees - especially for hotels - than low-price, high-frequency O2O businesses like restaurant and takeout delivery or car services,” Yap said.

Data from iResearch predicted that mainland China’s online travel market would be worth US$75 billion by 2017, up from an estimated US$55 billion this year.

Cynthia Meng, an equity analyst at Jefferies, said on Tuesday that the partnership between Ctrip and Qunar will “help the players achieve profitability faster than in the past several years”.

The strategic cooperation also provided a solution for Baidu to deal with the loss-making operations of Qunar.

“Ctrip becomes an associate of Baidu, and Qunar will no longer be part of Baidu’s financials,” Meng said.

With Qunar excluded from Baidu’s earnings calculation, Jefferies’ preliminary estimates showed that the Chinese online search market leader would post a 14.1 billion yuan (US$2.2 bilion) net profit this year.

Barclays’ Yap, however, said Baidu would still need to grow its other O2O services to better compete against Alibaba and Tencent.

Alibaba-backed group-buying service Meituan.com and rival Dianping, in which Tencent has a stake, announced a merger earlier this month. That combination poses a threat to Baidu’s own Nuomi group-buying platform.

This is the latest move in what has broadly been described as a period of consolidation among China’s internet-based industries, with the notable merger of the nation’s top two car-hailing apps in February to form Didi Kuaidi.