Tuesday, September 20, 2016

Mobike: great service, but no viable business model - Paul Gillis

Paul Gillis
Paul Gillis
Emerging startup Shanghai Mobike expanded to Beijing, to the delight of its citizens. But while accounting professor Paul Gillis likes and uses their service, he does not see how this VC-financed operation is going to make any money, yet, he writes at this weblog.

Paul Gillis:
Mobike offers bike rentals, something I can use to avoid Beijing’s heavy traffic. Mobike’s app opens to a map that shows me the nearest bikes to me, usually only hundred meters or so away.  I can then reserve the bike, follow the map to find it, scan a QR code on the bike and the bike unlocks itself.  
When I am finished with it I park it anywhere I wish, push a switch to lock it, and get charged 1 yuan per half hour – essentially free.  I paid a depost of 299 yuan using my Wechat pay account – another amazing app. 
Mobike as 10,000 bikes in Shanghai and 3,000 in Beijing and is adding hundreds every day. I have not had a problem finding one in Beijing, although they are scarce during rush hour. 
Mobike is VC funded, and the business model makes no sense to me. Each bike costs 3000 RMB – they are quite sturdy and some complain about the weight and lack of adjustability. At that cost it is estimated that it will take 25 months to recover the cost of each bike if each does four trips a day. That creates an interesting accounting problem. It appears the bikes are impaired as soon as Mobike puts them into service, necessitating a writedown, because the expected discounted future cash flows are significantly lower than the cost to build them. 
I can’t see Mobike doing a successful IPO. Some suggest it may be acquired by one of the ride sharing apps, but that does not make much sense to me either.  I think the business model only becomes viable if they transform the company into a software company and sell services to governments around the world to start their own bike sharing operations. 
Many cities have bike sharing, (Beijing has 50,000 bikes in its program) but they usually use fixed locations and payment can be challenging. Mobike could provide a turnkey solution for cities that want green transportation, and that might be a viable business.
More at ChinaAccountingBlog.

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