Chinese Internet – BAT by proxy.

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B retreats. A&T advance.  

• Meituan-Dianping is buying Mobike for $2.7bn in a move that is mostly about a defence against Didi but will also help it compete against Ele.me which has just been taken over by Alibaba.
• Meituan-Dianping is a Chinese on-demand platform that connects retailers with consumers where the biggest use of the platform is for food deliveries by e-bike.
• Against that backdrop and the move by Didi to crush the bike sharing start-ups (see here), the acquisition of Mobike makes some sense.
• Didi already owns stakes in Ofo and Bluegogo and has recently started offering their services within its app but under its own brand (see here).
• If successful, I think this will reduce both Ofo and Bluegogo, and even Mobike to commodities thereby preventing them from making money, resulting in their eventual absorption by Didi.
• The long-term plan could be to offer far more than transportation putting its size 12s squarely in Meituan’s backyard.
• Didi is now virtually unopposed in Chinese ride hailing meaning that it should be generating cash giving it the means to invest aggressively in adjacent areas.
• Furthermore, with Alibaba taking over its chief rival in on demand logistics, ele.me, Meituan needs scale more than ever to keep up.
• Meituan will need to fold Mobike into its infrastructure in order to cut costs as RFM estimates that the bloodletting in bike sharing is costing Mobike around $50m per month.
• If Meituan can also use vacant Mobike capacity for its other logistical services such as food delivery that will also help stem the losses.
• Most of all this should give Meituan greater scale to push back against Alibaba as it increasingly spreads its wings from e-commerce.
• Both Meituan and Mobike are backed by Tencent and I suspect that this move really about Tencent’s ecosystem competing against Alibaba’s in the home market.
• Growth in China is slowing and so the BATmen need to either find other avenues at home or go overseas.
• Overseas is a tricky proposition given the stark differences between Internet overseas and Internet in China, meaning that the best bet for the short to medium term will be at home.
• Conspicuously absent from this jockeying for position is Baidu which doing the opposite and shedding assets.
• This makes me think that Baidu is giving up on its ecosystem and is instead turning to AI for its future.
• AI will be incredibly important in the long-term and in China, Baidu is by far the strongest.
• Hence, an investment in Baidu is really an investment in AI, and given the crazy valuations being paid for AI, these days, this makes Baidu worthy of consideration.