First there was Alibaba, which boasted an IPO bigger than Google, Facebook and Twitter combined. Then there was Ant Financial, spun off from Alibaba, which has raised almost as much cash as all US and European fintech firms combined. Now thereโs Hello Transtech (formerly Hellobike), which may be valued at $4 billion if a rumored fundraising round (in Chinese) is successful. Itโs the other, other unicorn in Alibabaโs sprawling business empire.
In a two-part series, Iโll lay out how Hello is bidding for profits amid the bikesharing meltdownโand its importance in Alibabaโs battle for mobility.
Pedal power
Hello TransTech started out as Hellobike in 2016. Launched two years after Mobike and ofo started operations, Hello was the first bike-sharing operator to build up its business in Chinaโs smaller cities.
That turned out to be a smart play. TrustData estimates about 72% of Chinaโs bike-sharing users are in Chinaโs second- and lower-tier cities. GGV Capital Managing Partner Fu Jixin also reckons that frequency of use in lower-tier cities is higher, with each bike averaging more than four or five rides per day. (GGV Capital was an early investor in Hello.) That compares to an average of three or less rides per bike in first-tier cities.
These data points, plus a less-crowded competitive bikesharing landscape in lower-tier cities, gave Ant Financial confidence to drop $321 million in Hello in June 2018, minting a new unicorn. All up, Ant Financial has now participated in four of Helloโs seven funding rounds, which have raised a combined total of $1.8 billion.
Solid fundamentals
Bikesharing has earned a bad reputation among investors. A wasteful sharebike investment frenzy sucked up $4 billion of Chinese venture capital in 2017, ending in tears as industry darlings filed for bankruptcy or became albatrosses on the necks of their corporate parents.
In contrast, Hello looks differentโin fact, itโs already talking about profit. In late 2018, Hello Co-Founder and CEO Yang Lei announced that the company is profitable in around a third of 300 cities it operates in. Although that doesnโt necessarily answer concerns about bikesharingโs ongoing sustainability or profitability, itโs a far better strike rate than rumored numbers for rivals Mobike or ofo.
So, whatโs behind this?
One advantage is a smaller fleet. Although thereโs no precise figure, analysts estimate (in Chinese) that Hello operates between five and seven (in Chinese) million bikes, a fleet less than a third the size of larger rivals Meituan and ofo at their peak. The companyโs modest, yet growing fleet is less of a burden on the balance sheet, with less bikes to produce, distribute and repair. However, without strict controls, capital and operational expenditure could get out of hand.
Another is volume of trips. Last year, Hello TransTechโs 161 million registered users clocked up around 20 million rides a day. This, Chinese analysts reckon (in Chinese), is more than the combined trip volume of Mobike and ofo.
To those familiar with Chinaโs bikesharing scene, one number stands out: Helloโs users. According to Trustdata, Helloโs standalone app had about 3.7 million active users in May 2018โfar less than Mobikeโs 9.3 millio or ofoโs 11.3 million. However, Hello claims (in Chinese) its total registered user base has cracked 200 million. If those numbers are accurate, it means almost all of Helloโs users come from Helloโs mini-program in Alipay, not the Hello app. Any of Alipayโs 650 million monthly active users can walk up to a sharebike, scan and rideโwithout having to download a standalone app or pay a deposit. Alipay, of course, is owned by Ant FinancialโHelloโs largest shareholder. Talk about having an investor thatโs got your back!
Fewer skidmarks
Helloโs lower-tier strategy, smaller fleet and powerful backer make it a safer bet than the ridesharing upstarts that have come before it. Critically, it seems to have sidestepped the key missteps that crippled its rivalsโoversupply of bikes and banking on user deposits to finance operations. In my next article, Iโll discuss what Hello is doing in ride hailing, as well as its broader role in Alibabaโs drive to snap up Chinaโs on-demand mobility sector.
Correction: A previous version of this article described Ant Financial as โspun off from but still owned by Alibaba.โ In fact, Alibaba does not own a stake in Ant Financial. A deal under which Alibaba would take a 33% share of Ant, announced in 2018, has not yet closed.
