Meituan-backed Mobike set to survive amid sharing economy shake-up

By Wang Yi and Zhang Hongpei Source:Global Times Published: 2018/12/23 20:41:54

Mobike's orange bicycles in Shanghai on December 14 Photo: VCG

Chinese bike-sharing firm Mobike will not follow in the footsteps of ofo, another major bike-sharing start-up that is undergoing a liquidity crisis, since the former had excluded potential deposit risks when it was acquired, said industry analysts.

Mobike's founder and CEO Hu Weiwei resigned on Sunday, saying the move was not related to any internal fights or disharmony. Mobike's President Liu Yu will take over her position, according to a statement that Meituan sent to the Global Times on Sunday.

Mobike was acquired by Meituan-Dianping, China's largest provider of on-demand online services, for $2.7 billion in April.

"The original mission of Mobike was to change cities for good, and this continues. Indeed, we are only at the beginning. The dedicated team at Mobike will continue to work in close cooperation with Meituan- Dianping. I am thankful that both Meituan and Mobike are working together to become a stronger platform. I am also grateful for the opportunity to lead Mobike," said Hu.

Mobike is not likely to follow its competitor ofo into a crisis because the bike-sharing sector has a solid market and Mobike eliminated the risks of deposits when it was taken over by Meituan, Li Junhui, a professor at the China University of Political Science and Law, told the Global Times on Sunday.

"Shared bikes meet the short distance commuting needs of urban residents. The companies in the sector can achieve steady revenue and operations, if they can contain losses from trying to undercut the competition," Li said.

Ofo officially admitted last week to having "significant debt" and making "incorrect judgments," despite media reports that the company is facing a liquidity problem.

The statement came after hundreds of customers lined up outside the ofo's headquarters in Beijing's chilly winter to get their deposits back, only to leave empty-handed and angry.

Liu Dingding, a Beijing-based industry analyst, told the Global Times on Sunday that Mobike's business model is similar to ofo's, so the former is very likely to face some liquidity problems as well at this time. "But the start-up is well supported by Meituan and its bicycles are obviously better than ofo's in terms of quality.

"The bike-sharing business model could have realized profits," said Liu, adding that Mobike and ofo focused on capturing market share by burning cash early in the race, which held them back from breaking even and then making a profit.

Following Hu's resignation, Mobike will downsize its staff by 20-30 percent since some of its businesses overlap those of Meituan, reported Sunday.

"Mobike is also putting fewer bikes on the streets, with the number sharply down outside Beijing's Fifth Ring Road," Liu said.

"The most urgent thing for Mobike is to realize a steady cash flow," Liu said.

Ofo's dilemma also sparked concern over the once-thriving Chinese sharing economy, with some Chinese netizens saying that "ofo's case symbolizes the death of the sharing economy."

"The sharing economy model has seen no problems. But much closer supervision is badly needed to curb irrational behavior during inappropriate competition" Li, the professor, said.

"To prevent a crisis similar to ofo's, deposit management and inappropriate competition need close scrutiny," Li said. "Ofo's problem was just a supply chain problem, but after users lost confidence over the firm, there was a domino effect."

Mobike has over 9 million of its iconic orange bicycles operating in over 200 cities across 16 countries and regions globally, according to the company's press release in May.

Ofo has 15 million bikes across the globe, according to media reports in June.

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