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Bike-Sharing – Latest Front In Proxy War Between Alibaba And Tencent

Summary

Bike-sharing has become popular in China.

Mobike and Ofo are the dominant players.

Competition and growing pains confront bike-sharing companies.

Alibaba and Tencent back bike-sharing firms.

Consolidation has already begun in the industry.

Bike-sharing in China has exploded in popularity. With its rise has come increased competition and growing pains. While Mobike and Ofo dominate the industry, many smaller competitors have arisen. The industry has already started to consolidate with weaker players exiting the business. The remaining companies are currently addressing both profitability and operating issues.

Rival Chinese internet companies Alibaba (BABA) and Tencent (OTCPK:TCEHY) have stakes in Ofo and Mobike, respectively. Meituan Dainping recently purchased Mobike. Not only does this provide these larger companies access to the bike-sharing market, but it also allows them to integrate these into their transportation and delivery operations, realizing potential synergies.

Access to the rapidly-growing bike-sharing market is available through holding Alibaba and Tencent. Additionally, Meituan announced plans to go public, so access may soon be available through the company’s stock. Additional access is available through funds like EMQQ which invest in internet and ecommerce companies operating in the emerging markets. EMQQ holds both Alibaba and Tencent.

Background on the Market

Last year, we wrote about how the bike-sharing trend was sweeping across China’s largest cities and making its way across the ocean to the U.S. Bike-sharing companies flooded the streets of China’s largest cities with millions of bikes for rent. The Chinese bike-sharing model was different from what we usually see here in the U.S. in that there were no docking stations for the bikes. With an app on their smartphones, individuals in China could locate and rent a bike for prices as low as $0.15 for 30 minutes. When they were done, they could just leave the bikes anywhere.

Mobike vs. Ofo

The two dominant players in China bike-sharing have been Mobike and Ofo. Mobike counts Tencent (an EMQQ holding) as one of its major bakers. Ofo is backed by rival Alibaba (an EMQQ holding) carrying the two firm’s rivalry, by proxy, into the bike-sharing business. On-demand transportation company Didi Chuxing is also an investor in Ofo. According to a report on Reuters, both Mobike and Ofo say that they have roughly 200 million users each globally. According to Reuters, Didi has begun integrating Ofo’s services into its own platform and is launching its own branded sharing bicycles.

Growing Pains

As the popularity of bike-sharing increased so did the number of players. Many competitors flooded the streets with their own bikes. The flaws in the business model also became apparent. With very little accountability, vandalism became an issue for operators of bike-sharing companies. Additionally, with no docking stations, bike piled up en masse all over China’s cities giving rise to bicycle graveyards.

Consolidation

It was inevitable that there would be consolidation in the bike-sharing industry. Bluegogo, a competitor in the bike-sharing business folded late in 2017 with some of its asset taken over by on-demand transportation company Didi.

More recently, in April 2018, Chinese firm Meituan Dianping purchased Mobike. Terms of the acquisition were not disclosed, but the price has been rumored at $2.7 billion as reported by TechCrunch. According to an article on CNN Money, Hu Weiwei, founder of Mobike and Joe Xia, Chief Technology Office of Mobike will continue to serve in their current roles while Meituan CEO Xing Wang will become Mobike’s chairman. “We need to be more soberly aware that the competition Mobike is facing is becoming increasingly fierce,” said Mobike executives in a letter to employees shared with the media.

Meituan is best known for its food deliveries via electric bike, but that is just one part of its platform which connects local retailers to consumers through an offline to online (O2O) platform. Transportation is a major focus for Meituan. The company began offering ride-hailing services. It also invested in Go-Jek in Southeast Asia, a transportation and logistics company. The company’s purchase of Mobike makes sense in the context of Meituan’s focus on transportation and may also offer synergies with its core delivery business.

As part of the acquisition, the two companies will share technology, operations, marketing and customer service resources. Mobike will also maintain its brand.

Tencent is an investor in both Meituan and Mobike. Uniting the two companies could help Meituan battle Ele.me, the $9.6 billion delivery service that Alibaba just bought in late March. And the deal would help Meituan, which has been focused on China, outside their home territory. Mobike has a presence in 14 other markets. Further consolidation and changes in the bike-sharing industry are sure to follow as Ofo must now reappraise its own strategy and place in the bike-sharing market. Competition and growing pains continue to face the industry as a whole. However, companies will adapt.

EMQQ

EMQQ holds positions in Alibaba and Tencent. Purchasing EMQQ provides exposure to the bike-sharing and on-demand transportation industry in China.

Disclosure: I am/we are long BABA, TCEHY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.