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What You Need to Know about Alibaba’s Recent Investment in Ofo

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Apr. 18 2018, Updated 6:33 a.m. ET

$866 million raised for biking startup Ofo

Last month, Alibaba (BABA) led a funding round that raised $866 million for China-based bike-sharing company Ofo. Alibaba was joined in the latest Ofo fundraising by investors including its finance affiliate Ant Financial, Haofeng Group, Junli Capital, and Tianhe Capital. Ant Financial, which operates Alibaba’s mobile payment service, Alipay, made a deal last year to acquire MoneyGram (MGI) for $1.2 billion. However, the US government blocked it from closing the deal on national security grounds.

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Ofo is transitioning

Alibaba injected more funds into Ofo at a time when the bike-sharing startup is undergoing a transition. Ofo is transitioning from a phase of rapid growth to a phase where it now wants to focus on building quality, which makes sense considering how the bike-sharing market is quickly becoming crowded, thereby raising the need for serious contenders to try to differentiate themselves. Ofo operates in 21 countries where it serves 200 million customers across 250 cities.

$6.5 billion revenue in bike-sharing market

Consulting firm Roland Berger predicts that the global bike-sharing market will grow to about $6.5 billion in annual revenues by 2020. While Alibaba’s investment in Ofo could be a bet on the future of bike-sharing, the company’s main focus could be expanding its market for its mobile payment service Alipay.

Alibaba is in fierce competition with Tencent (TCEHY) in the race to dominate China’s mobile payment market. Last month, Walmart (WMT) decided to drop Alipay in favor of WeChat Pay in all its stores in Western China. WeChat Pay is Tencent’s challenger to Alipay. Tencent and Walmart are investors in Alibaba’s e-commerce rival JD.com (JD).

Revenue rose 56% YoY (year-over-year) to $12.8 billion at Alibaba in fiscal 3Q18 (calendar 4Q17). Revenue grew 38.7% YoY at JD.com in the same period.

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