Hello Transtech: Alibaba’s other, other unicorn
May 21, 2019
First there was Alibaba, which boasted an IPO bigger than Google, Facebook and Twitter combined. Then there was Ant Financial, spun off, but owned by, Alibaba Group, which has raised almost as much cash as all US and European fintech firms combined. Now there’s Hello Transtech (formerly Hellobike), which may be valued at $4 billion if a rumored fundraising round (in Chinese) is successful. It’s the other, other unicorn in Alibaba’s sprawling business empire.
In a two-part series, I’ll lay out how Hello is bidding for profits amid the bikesharing meltdown—and its importance in Alibaba’s battle for mobility.
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 China’s smaller cities.
That turned out to be a smart play. TrustData estimates about 72% of China’s bike-sharing users are in China’s 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 Hello’s seven funding rounds, which have raised a combined total of $1.8 billion.
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 different—in fact, it’s 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 doesn’t necessarily answer concerns about bikesharing’s ongoing sustainability or profitability, it’s a far better strike rate than rumored numbers for rivals Mobike or ofo.
So, what’s behind this?
One advantage is a smaller fleet. Although there’s 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 company’s 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 TransTech’s 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 China’s bikesharing scene, one number stands out: Hello’s users. According to Trustdata, Hello’s standalone app had about 3.7 million active users in May 2018—far less than Mobike’s 9.3 millio or ofo’s 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 Hello’s users come from Hello’s mini-program in Alipay, not the Hello app. Any of Alipay’s 650 million monthly active users can walk up to a sharebike, scan and ride—without having to download a standalone app or pay a deposit. Alipay, of course, is owned by Ant Financial—Hello’s largest shareholder. Talk about having an investor that’s got your back!
Hello’s 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 rivals—oversupply of bikes and banking on user deposits to finance operations. In my next article, I’ll discuss what Hello is doing in ride hailing, as well as its broader role in Alibaba’s drive to snap up China’s on-demand mobility sector.