Funds favor China’s bike-sharing sector despite lack of profitability

By Zhang Ye Source:Global Times Published: 2017/3/1 19:28:39

A neck-and-neck rivalry between China's top two bike-sharing apps is not only taking place on city streets across the country, but also in the capital market.

On Wednesday, Beijing-based Ofo announced that it has received $450 million from a consortium led by a Moscow-based investment firm DST Global. China's car-hailing giant Didi Chuxing was also convinced by the start-up to join its Series D fundraising.

"We are thankful for … the trust from global top-notch investors … We will continue to lead the rapid and sound growth of the industry," Ofo CEO Dai Wei said on Wednesday. Upon the completion of the Series D fundraising, Ofo's market valuation would reportedly reach $1 billion.

Last week, rival Mobike, backed by Tencent Holdings, also closed its own Series D round, worth more than $300 million.

"With the new capital, the competition between Ofo and Mobike will be even fiercer this year," Wang Chenxi, an industry analyst with Beijing-based market consultancy Analysys International, told the Global Times Wednesday.

The two are in a race to win over Chinese urbanites who are interested in pursuing a low-carbon lifestyle. In order to gain more market share, they began a subsidy battle at the beginning of 2017.

Mobike users now can obtain 110 yuan ($16) from the app for every 100 yuan they deposit into their accounts, which is seen as a counterattack against Ofo's similar offer of 100 yuan to riders who deposit 100 yuan.

There is great demand for bike-sharing service because it solves the "last mile problem" for commuters, said Wang.

A report issued by Beijing-based market consultancy BigData-Research early in February estimated that the number of bike-sharing users in China would grow to 50 million this year from 18.9 million in 2016.

Still, profitability remains a major challenge, said analysts.

"Start-ups cannot make ends meet by just collecting tiny rental fees from riders, because they both need to invest a lot to grow and maintain their bike fleets," Wang said.

Ofo, which found acceptance mainly among students, now has more than 20 million registered users in nearly 40 cities at home and abroad, offering services with a fleet of more than 1 million bikes, according to a press release Ofo sent to the Global Times on Wednesday.

The yellow Ofo bicycles dominated the Chinese bike-sharing market in 2016 with a 51.2 percent share, according to BigData-Research.

Mobike was in second position, seizing 40.1 percent of the market.

"Other start-ups may also have the chance to take the crown of the fledgling bike-sharing industry, as the two major players mainly target the first- and second-tier cities, leaving massive opportunities for latecomers to explore," said Wang.

Wang forecast that increasing number of start-ups would emerge, driven up by aggressive capital.

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