China’s first bike-sharing IPO Youon called off amid IP infringement lawsuit
Youon’s reliance on government procurement also called into question by analysts, faced with growing list of competitors in the shared economy
China’s first bike-sharing app initial public offering (IPO) has hit a bump in the road, after a patent dispute has emerged over its “Uber-style” rental business model.
Youon Public Bicycle System, the Jiangsu province-based bike sharing company, has been accused of infringing upon the intellectual property rights relating to “no-pole bike renting systems and methods” in a lawsuit filed at a court in Nanjing, Jiangsu’s capital city.
The lawsuit has been filed by Gu Tailai, the founder of Jiangsu SimLink, despite Youon’s IPO having gained regulator’s approval in April and being set to kick off its online roadshow on Friday, May 5.
Gu claims he owns the patent of the so-called dock-less bike rental system, which allows users to rent and return a bike whenever and wherever through mobile devices, a similar model adopted by most of bike-sharing firms in China, including Youon.
Youon had hoped to raise 598 million yuan (US$86.7 million) from the listing and insists it has not violated Gu’s intellectual property rights, due to the difference in its “technological solution and functional approach”.
But it has now suspended the IPO and is “carefully checking the issues raised, to protect the interests of investors”, it said.
Youon is one of a growing number of companies entering China’s red-hot app-enabled bike-rental sector.
Already widely dubbed “Uber-for-bike” services, about 30 Chinese start-ups now allow customers to rent bikes wherever they want, instead of from set locations.
The companies collect the bikes after peak hours and return them to in-demand pickup points designated by big data analysis.
Leading players such as the Tencent-backed Mobike and the Didi Chuxing-backed Ofo have secured hundreds of millions of US dollars of funding by providing services that charge as little as 1 yuan per hour.
Just three years old but having seen rapid expansion in the last 12 months, Beijing-based Ofo has raised a total of US$650 million giving it an astounding valuation of more than US$2 billion, with more than 10 million bike-rental orders now being completed daily.
Even before the patent row emerged, some analysts had already been concerned, however, over Youon’s ability to make “sustained profit”.
“Youon has adopted a different business model from the more high-profile Ofo or Mobike,” said Nathan Yin, a director with a state-backed private equity company based in Jiangsu.
“Its current earnings rely heavily on government procurement [contracts]. However, as the shared-bike model adopted by competitors has expanding and been accepted by more users, government demand is likely to mitigate,” he added.
Based on Youon’s listing prospectus, its core business is based on government-invested public bike services. From 2014 to 2016, almost 90 per cent of its revenue came from third-tier cities and their surrounding towns and counties.
The document shows annual revenue almost doubled from 2014 to 774.2 million yuan in 2016, generating net profit of 116.4 million yuan.
It has actually started piloting its business in first- and second-tier cities since the second half of last year, but that revenue only accounted for 0.12 per cent of its total, the prospectus said.
“This traditional business model has helped Youon meet the IPO financial requirements made by the CSRC, but also highlighted its late start in the more promising shared-economy sector,” added Yin.
“However, whether the shared economy works in third- and fourth-tier cities is still open to question, but Yonon has proved its profitability and is supported by government procurement agreements over the next few years,” he added.