Is bike sharing startup ofo going bankrupt?

 

The rumor that ofo, one of China’s leading bike-sharing startups, is in financial trouble has been around for a while. Now, it’s looking more plausible than ever. On June 4, Chinese tech blog Huxiu gathered various sources, including current employees from ofo and ride-hailing giant Didi, who indicated a completely different conclusion from ofo’s insistence that the company is operating perfectly normally.

According to Huxiu’s sources, four major clues indicate ofo’s urgent situation:

1)  A soon-to-be-completed, large-scale personnel layoff.

2) The layoff is the largest one ever for ofo, one that will sack 50% of employees and potentially more.

3) The layoff involves the company’s entire business chains, including its business team and functional divisions, of which there are 80 supply chain team members. The previous downsizing percentage for this team was 47%. According to the source, the number had increased to 60% by June 2, meaning only 32 people might stay.

4) Upheaval in management. On June 1, overseas market supervisor Zhang Yanqi allegedly resigned, and the entire department was dismissed. Other departing staff members include senior VP of market public relations Nan Nan as well as supervisor Yang Xun.

Nonetheless, ofo’s PR unit denies these rumors, insisting all are fake news and affirming that everything is operating smoothly. The company’s Co-founder Yu Xin described this rumor as nonsense. According to Yu, it would be inaccurate to refer to staff, namely COO Zhang Yanqi, as ‘supervisors.’ Meanwhile, Tencent News learned from an ofo employee that Zhang will reportedly remain within the internal structure and will undergo some regular position adjustments.

 

As for the dissolved overseas department, Yu said that the revenue from their Singaporean office alone is higher than rivals combined; it would be unreasonable to dismiss it. Tencent News was also told that though the department still exists, some employees have recently been relocated from overseas offices back to domestic headquarters.

A former ofo staff member told Tencent tech channel that quite a few employees have resigned since March. According to another senior source, a layoff proposal has been made; yet this information has thus far not been validated.

Founded in 2014, ofo just raised USD 866M in a Series-F funding round led by Alibaba in March, averting a plausible merger with its Tencent-backed competitor Mobike. The latest funding round marks the biggest in China’s bike-sharing industry to date.

On average, it took the company 3.6 months to secure each funding round. Ofo’s valuation also increased 200 times from USD 15.6 million in April 2016 to USD 3 billion in May 2017. Nonetheless, underneath its rapid growth, the company has not formed a viable business mode, as bike losses and operation costs have grown far beyond expectation.

Ofo allegedly claims it has attracted almost 200 million Chinese users. Together with Mobike, it not only has monopolized 90 percent of the domestic market, but has also have squeezed over 20 shared-bikes startups out of the business, according to State Department in February.

However, early in this January, Tencent tech channel reported on ofo’s slippering order amounts and financial strain. In response, ofo filed a lawsuit against the channel, claiming that the company was not facing a bumpy road.

According to Caixin Media, only USD 54.7 (RMB 350M) of allocable funds were left in ofo’s books by December 2017. This May, ofo mobilized employees to sell vehicle body advertising, given that the company could hardly gain revenue from rides. Meanwhile, the company also cancelled its deposit-free policy in over 20 cities across the country.

The situation is also worsened with negative relations with investors. A mere four months after receiving Didi as its major shareholder, ofo’s founding board kicked off three supervisors assigned by Didi.

On the other hand, ofo’s major two rivals Hellobike and Mobike both are backed by abundant funding.  

Hellobike landed USD 321 million from Alibaba’s financial services arm Ant Financial on June 1, pushing its valuation to USD 1.47 billion. Within only six months, Hellobike landed four funding rounds totaling USD 1.53 billion, with Ant Financial’s participation almost every time. Meanwhile, ofo’s long-term nemesis Mobike, which is backed by Tencent, was acquired by food-delivery giant Meituan-Diaping with USD 2.7 billion. With over seven million bikes in more than 180 cities worldwide, Mobike is a multibillion dollar unicorn and has arrived in Singapore and India.

(Top photo from Google)

Tongxu Cai
Tongxu Cai

Tongxu writes for AllTechAsia. She has a B.A. in Foreign Affairs from University of Virginia, She has a strong academic background in politics and history, especially the Sino-U.S, relations. She co-founded the only Chinese Theatre Group in her college and have travelled to 25 countries by far.

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