Shared-bike providers face dilemma as glory days come to end

Source:Global Times Published: 2018/10/10 17:43:40

Yellow ofos near dead end unless granted with a savior



 

A phone displays the ofo mobile app in front of a shared-bike in London, where ofo launched its bike-sharing service in 2017. Photo: IC


Abandoned shared-bikes are piled up at a parking lot in Shanghai in May Photo: IC



After Chinese bike-sharing platform Mobike was sold for $2.7 billion to domestic on-demand online services provider Meituan Dianping, the valuation of another bike-sharing company called ofo was lowered from $4 billion to $2.5 billion.

However, potential investors have shown little interest in acquiring ofo, which is struggling with many problems including rising debt and a capital shortage. The situation might further drag down possible bids to below $2 billion.

Since the beginning of June, ofo, which enjoyed the bike-sharing boom of recent years, has been selling off its overseas business. It halted operations in Australia, India and the US, and laid off most staff in China, a signal of its downturn.

Rumors about the sale of this major bike-sharing platform have circulated in the past few months. The company has also been entangled in a lawsuit with a major supplier, after having been sued by Shanghai-based manufacturer Phoenix Bicycles for unpaid bills.

The lawsuit caught the attention of other ofo suppliers, which are worried about possible defaults on ofo's orders.

"Phoenix Bicycles is a listed company, and what ofo did negatively affected their business performance," said an insider close to the shared bike supply chain, who declined to be identified.

The capital market has lost its appetite for ofo because of its increasing financial woes. Some investors even believe the company's valuation should be as low as $1 billion. This pessimism has weighed on the daily operations of the Beijing-based internet start-up, and many think it's facing a demise.

In July, a supplier that produces smart locks halted services to 3 million bikes owned by ofo, which was more than six months behind in its payments.

It also owes millions of yuan in logistics fees to companies including Deppon Logistics Co and Best Inc.

Some non-listed companies might be more patient toward ofo, the insider noted. "However, if suppliers all ask for payments at once, ofo may not have the cash to pay," he said.

Expect a savior

Ofo has been expecting a potential buyer to take over its business, and some Alibaba-backed investors have already bought stakes in the company.

Chinese car-hailing services provider Didi Chuxing, which is speculated to buy ofo at a very low price, has yet to reach any firm agreement with the company. Still, Didi is the most frequently mentioned potential buyer of ofo. Another potential buyer - Ant Financial, an affiliate of Alibaba - has invested in ofo's rival Hellobike.

However, both Didi and ofo have denied the deal. Didi said that "we have never had any intention of buying ofo " in a statement it released.

Since the second half of 2017, China's bike-sharing industry has been undergoing a reshuffle, and about 20 companies have gone bankrupt due to low profitability, according to a report published by Beijing-based consultancy Analysys International on September 7. The market will become mature soon, with the overall growth rate slowing, the report said.

From January 2017 to May 2018, total funds raised by the bike-sharing industry have exceeded 27.74 billion yuan ($4.03 billion), led by three major companies - ofo, Hellobike and Mobike, according to the report.

However, those companies will face more challenges as the industry shifts from subsidy-driven to efficiency-driven.

A major question for potential buyers of ofo is how valuable the company will be.

Industry insiders consider bicycles owned by bike-sharing companies to be core assets, and ofo raised 1.77 billion yuan from Alibaba by mortgaging its bikes. However, the company still needs much more money to make payments to its suppliers.

Also, ofo's bicycles are losing value, as it has slowed the pace of putting new ones on the street due to cash flow problems. Furthermore, more local governments are putting limits on shared bikes, which also weighs on its business prospects.

Dead end?

The glory days for the bike-sharing industry in China have come to an end, the report said.

While investors remain bearish on the sector, it is hard to tell whether Didi or Alibaba are willing to take over ofo's business.

The industry's cash-burning business model is not sustainable, industry representatives said.

"It's not a long-term business model, as ofo has not correctly calculated the depreciation expense of its bicycles," a source close to the matter said.

In recent months, ofo has tried out marketing campaigns in some major Chinese cities by investing in ads and lowering maintenance costs. But its efforts to become profitable proved unsuccessful.   

Obviously, bike-sharing companies can survive with the support of China's internet giants such as Alibaba and Tencent.

It's becoming impossible for ofo to decide its own destiny.

The story is based on a report by tech.qq.com on September 26.

Posted in: INSIGHT,BIZ FOCUS

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