New York/Hong Kong: Baidu Inc. is seeking to raise as much as $500 million for its Waimai food delivery unit amid a costly battle with other Chinese Internet giants for customers, according to people familiar with the matter.
The company is looking for at least $300 million and the funding round hasn’t been finalized, the people said, asking not to be identified as the details are private.
Using scooters to supply everything from Starbucks coffee to sliced sashimi, Waimai is in a pitched battle with rivals to sign up delivery men and convince restaurants to join its service. Baidu is up against Ele.me, which scored a $1.25 billion investment from Alibaba Group Holding Ltd, and the Meituan-Dianping business backed by Tencent Holdings Ltd.
Baidu declined to comment on any funding plans. The company has previously strongly denied Chinese media reports that it was considering a sale or merger of Waimai and its Nuomi group buying unit.
Baidu shares fell about 0.5% on Friday in US trading to $167.70. The stock has dropped 11% this year after a 17% slump in 2015.
Heavy investment in the online-to-offline, or O2O market, has driven up costs as companies pay subsidies to build out their services and win market share. The battle has already claimed victims, with Berlin-based delivery hero abandoning the Chinese market earlier this year.
The battle for customers has become increasingly hostile. In August, Baidu sued Tencent and Sohu.com Inc. over a spate of articles it said defamed Waimai by purporting to expose poor hygiene at restaurants on its service.
Baidu has invested heavily in sectors outside its dominant desktop search business as it tries to find new growth as users switch to mobile devices. That has weighed on profitability. The company’s operating margin, which measures earnings as proportion of revenue, fell to 15.3% at the end of September. That compares with 17.6% in 2015 and more than 50% in 2011.
The spending has been weighing on its share price. When Baidu announced the potential sale of its iQiyi video streaming business in February, its stock surged on prospects for cutting costs. The deal was scrapped in July.
While Baidu is often grouped with its rivals as the triumvirate of China’s web companies, it has fallen out of favour with investors. The Beijing-based company had a market value of $58 billion through Friday, compared with about $240 billion for both Tencent and Alibaba.
Baidu’s takeout delivery business became a separate entity at the end of 2015 and a funding round earlier this year valued the business at $2.5 billion, chairman Robin Li told investors on an earnings call in April. Bloomberg