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June 10, 2021
Chinese ride-sharing behemoth DiDi Chuxing filed for its U.S. IPO on Thursday, June 10, leaving it poised to become one of the biggest tech public offerings of 2021.
DiDi successfully listed and began trading on the NYSE under the ticker "DIDI" on June 30, raising $4.4 billion.
In its filing with the SEC, DiDi details its ambition to expand globally and its plans to invest in technologies for electric vehicles and autonomous driving solutions.
What does DiDi do?
DiDi Chuxing is the dominant ride-hailing startup in China. Founded in 2012, DiDi's backers include SoftBank, Uber and Tencent. DiDi's other businesses include shuttle bus services, bike rentals, designated driving, auto-repair service, delivery and logistics.
DiDi now operates in nearly 4,000 cities across 15 countries. The company boasted 493 million annual active users and 41 million average daily transactions for the 12 months ended March 31, 2021.
In 2016, DiDi won a costly turf war with Uber China by acquiring the American ride-hailing company's China business. DiDi took a reputational hit in 2018 after encountering a scandal with Hitch, a carpooling service DiDi launched in 2015 that suggested hookups between drivers and passengers in its 2018 ads. Two female Hitch passengers were raped and killed that same year.
In an attempt to diversify its revenue stream before its IPO, DiDi directed much of its internal resources into community group-buying, which uses grassroots intermediaries to distribute groceries along the "last mile." CEO Cheng Wei reportedly said in early November that the company's investment in Chengxin Youxuan, DiDi's community group-buying service, "would not be capped" and that the company would "go all out to be the No.1 in the market."Earlier this year, DiDi was among several other tech giants slapped with harsh penalties for failing to report past mergers and acquisitions in advance of completion for antitrust review. (Many companies have honored this rule in the breach, at least until a recent crackdown on noncompliance.)
In 2020, DiDi booked revenue of $21.6 billion, shrinking 8.4% from 2019, due to pandemic-driven quarantines and travel restrictions. For the first quarter of 2021, the company posted $6.4 billion in revenue, more than doubling its rake from the same period in 2020.
A known cash-burner, DiDi has lost money each full year since its founding in 2012; the company posted an annual loss of $1.6 billion in 2020. But for the first three months in 2021, DiDi turned a profit, booking a net income of $837 million.
DiDi makes no promises, warning investors in its prospectus that the company "may not be able to achieve or maintain profitability in the future."
What's next for DiDi
DiDi says it will continue to invest in technology, specifically AI, and expand further into global markets.
In its filing, DiDi states that it will invest 30% of the IPO proceeds into tech capabilities, including shared mobility, electric vehicles and autonomous driving technologies. DiDi has been building its autonomous driving business over the past five years, and now has a team of over 500 employees and a fleet of over 100 autonomous vehicles. DiDi is also among several Chinese tech behemoths stepping up investment in the EV market, buoyed by favorable state policies. On April 18, DiDi Chuxing announced a partnership with Volvo to develop self-driving cars for a planned future self-driving taxi fleet. In a separate attempt, DiDi is also building an EV subsidiary, for which it's actively poaching talents from automakers, according to Chinese financial publication LatePost.
DiDi has also signaled major moves to expand into global markets by dedicating another 30% of the funds raised in its IPO to grow market share in countries outside of China. DiDi began its global expansion in 2018 and has made major inroads into Latin America in particular. About 12% of its annual active users are outside of China.
What could go wrong?
DiDi's reputation has been tainted by a slew of controversies over the years, like the high commission fees it charges drivers and accusations that it discriminates between iPhone and Android users. But the most damning one happened in 2018, which effectively forced DiDi to shelve its first IPO plan conceived as early as in 2016. In two separate instances three months apart, a DiDi passenger was sexually assaulted and murdered by her DiDi driver. The murders shocked the whole country and resulted in an investigation organized by 10 Chinese government agencies. In response, DiDi suspended its carpooling service for almost two years, during which competitors quickly gained market share. Such scandals, if they happen again in the future, could seriously hurt DiDi's business.
After successfully acquiring two of its biggest competitors in China — Kuaidi and Uber China — DiDi is the uncontested winner of China's ride-hailing market with a 90% market share. But that also makes it vulnerable to the government's anti-monopoly investigations, which started getting serious late last year. In April 2021, DiDi was among the over 30 major internet companies summoned by China's market regulator to conduct self-inspection of possible violations of China's anti-monopoly rules. A taxi industry alliance has even publicly called for reopening an investigation into the merging of DiDi and Uber China, putting the company in a precarious spot.
The global trend of pressing tech companies into classifying gig workers as employees has also impacted DiDi. In the prospectus, DiDi says that reclassifying gig workers "could require us to fundamentally change our business model." This is further complicated by the fact that DiDi is now operating in 15 countries and faces additional uncertainty from legislative changes around the world.
Who gets rich?
- SoftBank Group owns 21.5% of the shares through its technology-focused SoftBank Vision Fund.
- Uber owns 12.8% of the shares through the share swap that was part of DiDi's acquisition of Uber's China business.
- Tencent owns 6.8% of the shares. It was one of the earliest and most consistent backers of DiDi.
- Will Wei Cheng, founder and CEO of DiDi, owns 7% of the shares.
- Jean Qing Liu, president of DiDi, owns 1.7% of the shares.
What people are saying
- "DiDi is partnering with more third-party limousine companies. If it can maintain its commission above a certain rate, the demand is there and it should be able to make money eventually." —Julia Pan, Shanghai-based UOB Kay Hian analyst, in Bloomberg.
- "We have reached the second peak of the ride-hailing industry. The first peak was marked by a battle of subsidies, which DiDi [won], securing the market lead. But the second peak is marked by DiDi's market share rapidly falling and being taken away by competitors. New players like Meituan, AutoNavi, and internet giants and hardware companies are entering the industry." —Zhang Xiang, auto industry analyst, in 21st Century Business Herald.
- "There's no 'economic moat' in the ride-hailing industry. The monopolistic advantage of DiDi is the result of massive spending in subsidies during its early days. Pricing is both the foremost concern of consumers and the most straightforward tool for platforms." —Cui Dongshu, secretary general of the China Passenger Car Association, in Chinese finance publication Caijing.
- On Chinese tech companies' foray into EV manufacturing: "DiDi has the mobility user habits and data, and already works with [China's] BYD Auto, and is accelerating their autonomous vehicle efforts. Both (DiDi and Xiaomi) have to figure out how much they do in-house versus how much they work with existing partners and OEMs." —Lei Xing, former chief editor of Beijing-based China Auto Review, in Barron's.
Correction: An earlier version of this story stated the incorrect figure for net income in the first three months of 2021. This story was updated on June 11, 2021.Update: This story was updated on June 30, 2021.