Baidu’s Qunar: Going Places 百度投资的去哪儿网：前途无量

By newsdoug on April 4, 2012

We’re getting a bit more clarity on Qunar, the online travel site that made headlines last June when it received a major investment from search leader Baidu (Nasdaq: BIDU), following the release of some new financial data showing a company that looks quite intriguing and potentially positioned to soon challenge eLong (Nasdaq: LONG) for the place as the sector’s second largest player. I’ll be the first to admit I was a bit skeptical when Baidu forked out a hefty $300 million for an unspecified stake in Qunar last year, assuming the stake was probably a minority interest and also unconvinced about the wisdom of investing in an area so far removed from Baidu’s core search business. (previous post) But now Chinese media are reporting that according to a Baidu filing with the US securities regulator, it actually purchased 62 percent of Qunar in the transaction, making it the company’s major shareholder. (Chinese article) Some quick math will show that investment values Qunar at just under $500 million. A further look will show that eLong, which I’ve long considered an industry laggard, also has a market capitalization in the same range, at just over $500 million. eLong also made headlines last November when longtime minority investor Expedia (Nasdaq: EXPE), a top US online travel agent, paid a hefty premium to boost its stake to a majority share. (previous post) But after rallying on the news, eLong shares have since given back nearly all of their gains and now trade at about $15, far below the $23 per share that Expedia paid to boost its position. All this reflects the reality that despite its longtime presence in the industry and Expedia ties, eLong has failed to ever bridge the large gap between itself and market leader Ctrip (Nasdaq: CTRP), whose market capitalization of around $3 billion means investors think it is worth six times as much as eLong. Founded in 2005, Qunar had revenue of about $23 million and a profit of about $420,000 from the time of Baidu’s mid-year purchase of its controlling stake, according to the newly released data. That would translate to annual revenue of about $46 million and a profit approaching $1 million, versus eLong’s $93 million in revenue and $6.2 million in profits last year. So clearly eLong is more profitable and twice the size of Qunar in terms of revenue; but eLong was also founded in 1999, meaning it had a 6 year head start over Qunar. Based on Qunar’s valuation from the Baidu deal and eLong’s inability to become bigger and pose a more serious challenge to Ctrip, I would say that Qunar looks like a company to watch closely, especially following the Baidu tie-up which could see it use Baidu’s hugely popular search and other sites to boost its position. If things proceed smoothly, I wouldn’t be surprised at all to see Qunar pass eLong in terms of revenue in the next 2 years, with a potential IPO for the company also possible in that timeframe.

Bottom line: New financials for Baidu-invested online travel site Qunar show a company poised to make a potential IPO and challenge eLong for the sector’s number-two spot in the next 2 years.

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