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Everything you need to know about the Hello IPO

Everything you need to know about the Hello IPO

The Ant Financial-backed Hello is set to be the first Chinese bike-sharing company to go public. On April 23, Hello Inc. filed for an IPO with the SEC, seeking to raise $100 million on Nasdaq. The company has not yet set a date for its trading debut.

In its prospectus, Hello, the No.1 bike-sharing startup in the world, detailed its ambition to expand into the so-called "local life" business, a huge market in China that's currently dominated by Meituan and Alibaba. Such platforms allow users to order discounted, locally-found products and services.

What does Hello do?

Founded in 2016, the Shanghai-based startup survived China's brutal bike-sharing battle that flared up in 2017, even though it was a late-comer to the ecosystem. Over the years, Hello has expanded its services to include rented e-bikes and e-scooters, as well as carpooling and battery-as-a-service.

Hello prides on its "sticky" user base, meaning the ability to retain customers who use its services frequently. In 2020, Hello generated 5.2 billion transactions across the board, and about 34% of Hello's users have used more than one of its services.

According to iResearch, Hello is the world's largest bike-sharing company. It facilitated 5.1 billion bike and e-bike rides in over 300 cities in 2020. This service is Hello's biggest source of revenue, accounting for 91% of its total revenue last year.

Hello's second largest business is carpooling, which contributes 7.7% to the company's 2020 revenue. Market research shows that Hello is the second largest carpooling service in China in terms of 2020 gross transaction value, generating $1.1 billion through 94.5 million rides, representing a 30% market share.

The company is also developing and testing the "local life" in selective cities. iResearch data shows Hello became China's third-largest local services platform by transaction volume in 2020.

Hello's Financials

Hello booked $926.3 million in revenue in 2020. That's a 25% jump from its 2019 revenue, despite the fact that residents in China traveled less during the pandemic.

Like many other startups, Hello is also facing the pressure to turn a profit. In 2020, Hello's net loss reached $173.7 million, narrowed by 24.7% compared to the 2019 net loss and by 48.6% compared to 2018's figure.

What's next for Hello?

Hello intends to use the funds raised in the initial public offering to expand its business, invest in R&D and put toward working capital and general corporate purposes.

Believing there's a large-size user base remaining untapped in China, Hello plans to expand into more cities and towns. Going forward, Hello will continue to expand its mobility services, and it plans to launch and scale its "local life" services across the country.

What could go wrong?

Hello warns its investors that the company could continue to lose money. Hello requires a huge amount of capital to fund its operations, and if it can't raise enough money, its business will be affected.

As a 5-year-old company, Hello is as young as the bike-sharing industry. This makes it challenging for investors to evaluate its future prospects and risks that may hinder its growth. And cut-throat competition means Hello could still lose market share to its competitors.

Hello will continue to face a considerable regulatory challenge in China in both the bike-sharing and in carpooling marketplaces. For example, bike-sharing is a business that requires bike distribution scale, but local governments distribute very limited compliance quotas to bike-sharing companies. Since 2019, 80% of Chinese cities have adopted quota systems.

Hello warns investors that the company may face strong headwinds due to past and current non-compliance and potential future failure to comply with regulations. The company was reportedly fined in Beijing and Wuhan in 2019 for regulatory violations. Changes in regulations at either the central or local level could also negatively affect the company.

Who gets rich?

Ant Financial: Antfin (Hong Kong) Holding Limited, a wholly owned subsidiary of Ant Financial, owns 36.3% of Hello.

Co-founder Lei Yang: Yang, who's also Hello's CEO, holds 10.4% of the company's shares.

Youon Technology: The Changzhou-based Youon is a developer of public bicycle systems and other system products. It holds 7% of Hello's shares.

GGV Capital: The Menlo Park-based firm owns 6.1% of Hello through an entity called GGV (Hellobike) Limited.

What people are saying

"How do you get users to use the Hello app to place orders for life services even when they don't see a Hello Bike?" —Zhuang Shuai, founder of Beijing's Bailian Consulting, pointed out that users' consumption habits will be a challenge for Hello to expand its "local life" services.

"Rather than embracing the capital market on its own initiative, it is more likely that the tough market environment has forced Hello to seek more stable financing channels.Hello has handed in a fairly satisfactory answer sheet, but from the perspective of the entire industry, Hello's businesses, be it the wo-wheeled business or four-wheeled business, face a development bottleneck." —Chinese tech blogger Mu Sen wrote about Hello's IPO.