INTERNET: Car Inc Drives Onto OTC, Yidao Spars with WeChat

Bottom line: Car Inc’s hired car services unit’s $5.5 billion valuation on China’s New Third Board is hugely overinflated, while Yidao’s new clash with Tencent shows the regulator needs to become more active in oversight of WeChat.

Two of China’s second-tier hired car services providers are in the headlines heading into the weekend, as these smaller companies fight an uphill drive to attract attention away from industry giants Didi Chuxing and Uber. The larger of the 2 stories has the hired car services unit of car rental leader Car Inc (HKEx: 699) receiving approval for a listing on China’s over-the-counter (OTC) New Third Board, valuing the company at a hefty 37 billion yuan ($5.5 billion). The second story has Yidao getting in a tussle that has seen promotion of its services blocked on Tencent’s (HKEx: 700) wildly popular WeChat platform .

The hugely inflated valuation for Car Inc’s relatively new hired car service, whose Chinese name translates roughly to Shenzhou Hired Car, looks quite typical for this kind of hot emerging sector in China. Didi got a valuation of around $25 billion with its latest funding round in May, as investors were willing to pay big premiums for a company that hopes to not only conquer the China market but also to expand abroad.

Car Inc has spent most of its life as a car rental company, and counted US giant Hertz (NYSE: HTZ) as one of its major stakeholders until early this year. (previous post) But it has made an aggressive push into hired car services these last few months, raising 5.8 billion yuan in 3 separate funding rounds since March, valuing it at the 37 billion yuan figure.

Now the latest reports are saying the company has been formally approved to list on the nation’s OTC-style New Third Board in Beijing, and would become the second most valuable company traded on that exchange. (Chinese article) By comparison, Car Inc’s original Hong Kong-listed unit that includes its far more mature car rental service has a market value of HK$18.3 billlion, or about $2.3 billion.

That means Car Inc’s new hired car services unit is more than twice as valuable as its rental car business, even though the former probably has very little revenue yet and is far younger. That fact shows just how high Chinese investors are willing to value companies in hot high-tech sectors, which is why many offshore-listed Chinese tech firms are now trying to privatize and re-list back at home.

Yidao Blocked on WeChat

Meantime, Yidao is going public about its clash with WeChat over the latter’s decision to block the former on the popular social networking platform. The reports are saying Yidao’s price comparison software has been blocked on WeChat, and people can no longer re-post links to Yidao’s service to their other friends WeChat. (Chinese article) Tencent has said Yidao is violating its user policies, and that Yidao knows what it needs to do to come back into compliance.

This isn’t the first time a major company has been blocked on WeChat, and testifies to how influential the service has become. That reality has become somewhat problematic for companies like Yidao, since Tencent is an investor in rival Didi Chuxing and thus may give that company favorable treatment. Uber made similar complaints late last year, again with similar overtones that Tencent was favoring Didi. (previous post)

It’s hard to know if Tencent really is playing favorites in these cases, or if Uber and now Yidao really are violating its policies. In any event, this does seem like a case where the regulator should probably play a more active role and force WeChat to clearly state its policies and also provide details when it blocks companies for violating those policies. Similar standards already apply to the country’s big 3 telcos, and should also apply to privately run services that have achieved the scale of a service like WeChat.

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