Web Directory Service 2345 Selling 38% Stake at A Valuation of RMB2 billion

ZHEFU (SZ:002266), a Chinese hydropower equipment company,  announced to acquire a 38% stake in 2345.com, a Web directory and browser provider, for RMB760 million ($124 mn) (statement in Chinese). Thus 2345 is at a valuation of RMB 2 billion ($325mn).

ZHEFU will invest in no more than RMB650 million and its biggest shareholder Sun Yi will input no less than RMB110 million, according to the statement. The stake sold will be from Pang Dongsheng, who currently owns 46.2% of 2345.

As of July 2013, 2345 had 30 million users of the directory site and 10 million browser users. The company made RMB139 million in revenue and RMB 15.93 million in profit in 2012. The total revenue for the first half of this year is RMB210 million with RMB33.14 million in profit.

2345.com was once the second largest Web directory site in China, only after Hao123.com which was acquired by Baidu in 2004 for RMB 50 million cash and some Baidu shares. It is believed that Hao123 once drove about 30% of Baidu’s revenues through paid listing and the Baidu search box placed on it.

Qihoo’s hao.360.cn later surpassed 2345.com. Qihoo successfully channeled users of its free security service to the browsers developed in house where hao.360.cn is set as the default landing page. Monthly active users of Qihoo 360’s browsers was 332 million and average daily unique visitors to hao.360.cn were 94 million as of March 2013, according to Qihoo’s Q113 financial report. All the revenues of Qihoo’s are generated through the browsers and the landing page. More than a few Chinese companies, such as Sogou and 2345, followed the business model.