The first merger gets under way among China’s bike-sharers as cash runs out among also-rans
China’s bike-sharing firms start to merge as the cash burn
Changzhou Youon Public Bicycle System, the first of China’s bike-sharing applications to go public, has kicked off a much-anticipated consolidation in one of the country’s hottest industries as an unsustainable business model built upon burning cash claims its first victim.
Youon will take over Hello Bike, a one-year-old company based in Shanghai, according to an announcement on the company’s website that did not provide any financial details. Youon’s shares rose as much as 6.7 per cent to 75 yuan, the highest intraday level in two weeks.
China’s bicycle-sharing platforms, overcrowded by more than 40 services that have sprouted in a little over a year, have attracted US$2 billion in funding in the last year and a half, making it one of the most-invested industries for private equity, venture capitalists and angel investors. At the top of the pile are Mobike and Ofo, two Beijing-based companies each valued at more than US$1 billion, or unicorns in a field of smaller competitors.
“The clock is ticking for all of the smaller players to fight for the third spot, after Mobike and Ofo,” said Shi Rui, an analyst with independent research firm iResearch. “After years of red-hot competition, consolidation is inevitable.”
“Youon still lags behind in terms of dockless bikes, but it is cash-rich thanks to its recent listing, while Hello Bike leads the pack of second echelon,” Shi said.
The Shanghai-listed Youon started to operate dockless bike sharing in late 2016. It reported a 21 per cent rise in net profit to 61.4 million yuan (US$9.2 million) against a revenue of 474.5 million yuan in the first six months.
However, the analyst noted the acquisition is unlikely to shake the dominant position of Mobike and Ofo, which together account for 95 per cent of the market share in China.
“Smaller players are under tremendous pressure, vying for the remaining 5 per cent,” Shi said. “Only those with deep pockets or falling under the protection of bigger ones can survive the game.”
In China, the service charge for sharing a bicycle can cost as little as 0.5 yuan per hour, or riders can subscribe to a limitless freeride package for a mere 2 yuan per month.
In June, the cash burn claimed its first casualty, when Chongqing-based Wukong Bike shut down just five months after its launch, racking up losses of nearly US$150,000. Other small players operating from China’s smaller cities have also reported difficulty in locating new funding.
Closures have been reported as a number of Chinese cities including Shanghai, Beijing and Guangzhou have banned bike-sharing firms from adding more vehicles to the roads, as their increasing numbers on the streets have become a public nuisance. The random parking of the bikes and their sheer neglect were seen causing obstruction and inconvenience to the public.
“The fast growth enjoyed by Mobike, Ofo and a few others will slow eventually, or end,” said Jeffrey Towson, a professor at Peking University. “Then they will have to decide whether they should really tear into each other, or team up.”