Scooters & bikes – Consolidation phase.

The bloodbath is not over.

• The bloodbath that is the micro-mobility market still has a long way to go before anyone has a hope of making any money let alone earning a positive return for investors.
• The latest round of consolidation involves the acquisition of Berlin-based Circ by Bird for an undisclosed sum.
• Given that Bird has just raised $350m at a post-money valuation of $2.85bn and that Circ did its first large raise just one year ago, I suspect that Bird has acquired Circ for less than $50m.
• Despite its youth, Circ has already hit problems and was forced to put the brakes on its aggressive expansion plans in 2019 which is probably the main reason why it has agreed to sell itself to Bird.
• The problem with all of these shared transportation offerings is that there are no real barriers to entry which has meant lots of entrants when the hype cycle is at its peak.
• Furthermore, the only real differentiator is price meaning that all of these players have to fight tooth and nail for market share in order to have a hope of turning profitable.
• This is true for bikes, scooters, ride-hailing, food delivery as they all follow the same economic rules of network-based businesses.
• All of these companies need to become the go-to place to purchase the service being sold because once that has been achieved, prices can rise to allow a profit margin without hurting demand.
• RFM’s research has long shown that in order to achieve this hallowed status, a company needs to reach 60% market share or be double the size of its nearest competitor.
• Even as the number of players in the market rapidly shrinks, the big battle between leader Bird and Lime has yet to be fought and it is not going to be pretty.
• Bird has claimed that it has a 19% gross margin on each ride that it provides but with subsidies and promotions often being accounted for in operating expenses, this number is open to question.
• While the current climate persists, I think that most rides are offered at negative gross margins meaning that the company with the deepest pockets is likely to be the winner.
• However, even then, things are not clear.
• City regulators have already caused havoc in this sector and could quite easily do so once again should the poor safety of e-scooters start to cause regular injuries as more people use them as these companies hope.
• Investment in this sector is also falling fast as $795m was invested in 7 deals during Q3 19 (see here) compared to $4.8bn in 48 deals during Q1 2018.
• Consequently, I am not convinced that this sector will survive on its own and I think it will end up being acquired to become part of a wider transportation service.
• This is exactly what has happened at Uber and DiDi both of whom now offer far more than just ride-hailing.
• There are still far too many players in this space which will ensure that prices remain rock bottom and consolidation the main theme.
• There are far better places to invest in 2020.