Tencent Holdings Ltd. (700) acquired about 20 percent stake in Dianping, the operator of a Yelp-like website in China, to strengthen location-based services offered by Asia’s largest Internet company.
Huai River Investment Ltd., a wholly owned unit of Tencent, purchased new shares in Dianping Holdings Ltd., the Shenzhen, China-based company said yesterday, without specifying the value of the transaction. Tencent may invest as much as $500 million in Dianping, Sina.com reported Feb. 17, without saying where it got the information.
The acquisition will let Tencent tap into Dianping’s almost 100 million monthly active users who access the website’s reviews and discounts for food and entertainment. Tencent is competing with Alibaba Group Holding Ltd. to offer location-based shopping and entertainment services in a market where more than 500 million users accessed the Internet from mobile devices last year.
“It’s going to help Tencent a lot,” said John Choi, an analyst at Daiwa Securities Group Inc. in Hong Kong. “Tencent previously didn’t have enough content on its online to offline business, especially in the local information service.”
Tencent fell 0.3 percent to HK$582.50 before the announcement in Hong Kong yesterday. The stock has climbed 18 percent this year, outperforming the city’s benchmark Hang Seng Index, which has declined 2.8 percent in the period.
Zhang Tao, founder and chief executive officer of Dianping, said in October that the company planned to sell shares in an initial public offering in five years and that the company may be worth more than $10 billion. He declined to comment yesterday on the amount of investment made.
“Tencent is the best with social networking in China, while we are good at content and our business model,” Zhang said at a press conference in Shanghai. “Just imagine the combination of Dianping with QQ or WeChat.”
Dianping had more than 30 million reviews covering 2,300 cities as of December, according to its website.
The company could turn a profit as soon as this year, Zhang said in October.
Dianping, backed by Sequoia Capital Operations LLC and Lightspeed Venture Partners, was founded in 2003 in Shanghai and offers local business-search services that include consumer-generated reviews. Users can also buy coupons and enjoy group discounts just like on Groupon Inc. (GRPN:US) The company has collected data on more than 8 million local businesses across China as of December.
Yelp Inc. (YELP:US) had a market value of about $6.4 billion and Groupon was worth $7 billion as of Feb. 18.
More than 75 percent of Dianping’s traffic comes from mobile users, and the company had more than 90 million unique mobile users as of December, according to the company’s website.
“We can quickly connect people with local business owners by cooperating with Dianping,” Tencent President Martin Lau said yesterday. “In terms of our future investment strategy we hope to find the best companies in their industries.”
Tencent has been aggressively investing in other companies to expand its footprint in mobile development, gaming and e-commerce. The company bought a stake in January in China South City Holdings Ltd. (1668) to boost logistics support for its e-commerce business.
Online retailing in China more than doubled each year from 2003 to 2011 and is projected to more than triple to $395 billion in 2015 from 2011, according to a McKinsey & Co. report in March last year.
Tencent also invested in the company that owns Didi Taxi, a popular cab booking app in China, to promote its mobile payment system in December.
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