China’s Didi Could Be World’s Biggest IPO in 2021

Didi Chuxing Technology Co., China’s ride-hailing behemoth, made its IPO, Initial Public Offering, papers public on Thursday, setting Beijing’s company up to secure billions and start trading publicly in the United States in July.

As per sources, Didi had confidentially filed for its IPO in April.

Didi often dubbed as “the Uber of China,” filed under its formal name, Xiaoju Kuaizhi Inc., and it could fetch a valuation of over 70 billion USD, according to people familiar with the matter stated to The Wall Street Journal (1). Moreover, it is a number that can stretch even higher amid investors’ voracious appetite for high-growth, newly public companies amid a recently frenzied IPO space (2).

A separate Reuters‘ source has put that number over 100 billion USD (3).

Notably, Didi’s debut could be the most significant Chinese share offering in the United States at that valuation since Alibaba secured 25 billion USD in 2014.

Moreover, Didi Chuxing would also surpass Uber at that valuation, which had a market valuation of 92.7 billion USD as of Thursday’s close in New York.

In a regulatory filing, Cheng Wei, Didi’s CEO and Founder (4) stated,

“We aspire to be a truly global tech company. While our business started in China, we believe we can make life better for several more people worldwide similarly.”

“What we have learned and created is relevant globally, especially in countries like South Africa, Russia, Latin America, or anyplace, where affordable, convenient, and safe mobility is valued,”

he added.

In addition to a United States IPO, Didi may also pursue a secondary listing in Hong Kong in the future, as per reports (5).

According to Reuters‘ report, JP Morgan, Goldman Sachs, China Renaissance, and Morgan Stanley are the lead underwriters for the Didi IPO.

Didi IPO Gold Rush

Since its foundation in 2012, Didi has secured more than 19.2 billion USD capital from private markets.

There are expectations that Didi would secure about eight to ten percent of the valuation amount in the offering. The Chinese company says that it will use the money to invest in technology ramp-up, grow its business overseas, and introduce new products.

According to reports, Didi has not selected an exchange yet. However, the Beijing-based company stated that it plans to list its United States depositary shares under the DiDi symbol on either the New York Stock Exchange or Nasdaq.

The Chinese ride-hailing platform is approaching the United States public markets at a fortuitous moment since the last 2020 IPO fervor. Then, it had sent offerings from DoorDash and others skyrocketing after their debuts. And despite the cooled hype, valuations for public companies have remained high compared to previous norms.

And considering the fact that Didi has secured tens of billions worth of private capital from venture capitalists, corporations, private equity firms, and other sources, it is safe to say that the size of the bet ride on Didi is massive.

There is a Hype But Also a Flatline

Like Uber Technologies Inc, based in the United States, a Beijing-based company operates a smartphone app where people can hail rides, regular taxis, and carpooling services.

Didi is renowned for successfully pushing Uber out of China, winning an intense price war that ended in 2016 when Uber merged its Chinese unit with Didi in exchange for a 15% stake (6).

For the full 2020 year, the filing indicates that the company posted revenue of 141.74 billion Chinese Yuan, about 21.63 billion USD, which fell by 8.4% from a year earlier amid the coronavirus pandemic, which had lead to travel restrictions, quarantines, and limitations on public gatherings.

Similar to several tech startups, Didi has a history of losing funds, even though, in the initial three months of 2021, it reported a profit of 196 million yuan, about 30 million USD.

Last year, it posted a 10.68 billion yuan, approximately 1.63 billion USD net loss. Notably, it also lost money in the full years 2019 and 2018.

Uber, in comparison, posted an 11.14 billion USD full-year revenue in 2020, with a 6.77 billion USD loss.

Despite the coronavirus pandemic briefly pausing the flow, Didi’s IPO has long been in the pipeline. As,\ unfortunately, the ride-hailing space was among the hardest hit as stay-at-home orders proliferated.

Apart from Didi, other major firms in the space, such as Lyft and Uber, also bled hundreds of millions of dollars in revenue.

Didi’s Multiple Hurdles

Apart from its history of losing funds, the China-based ride-hailing platform has several other concerns.

Earlier in 2021, Didi was among big tech firms Chinese regulators had fined for alleged monopolistic practices. Last month, authorities had summoned Didi and nine other mobility entities to warn over their treatment of employees.

Notably, Didi still faces hurdles as Beijing is looking to tighten its grip on China’s most prominent businesses.

Didi has other concerns too. It stated that its business had been hit hard by the coronavirus, and the pandemic could continue to impact its future growth.

In its prospectus, Didi stated, “if the situation takes a turn for the worse in China, or if there is no material recovery in other markets, the business, operation results, and financial conditions will be adversely affected.”

It’s another concern in China’s broadening tech crackdown. Lately, the Chinese regulators have also been cutting global tech champions down to size, cracking down on undue risk-taking and antitrust abuses (7).

In 2018, the company had come under fire from Chinese social media users, who called for the platform’s removal after a woman was allegedly raped and killed by its driver (8). Consequently, Didi announced it would record audio during car trips, which it would delete after a week.

However, Didi has not specifically mentioned the feature in its prospectus.

Didi IPO to be Mega Hit Despite the Concerns

As per Didi’s IPO filing, the company reported a 1.6 billion USD net loss last year.

Like several other ride-hailing platforms, it has also been historically unprofitable.

However, Didi has managed to swing a profit in 2021’s first quarter as the economy rebounded from COVID-19. The company also states the billions it is expecting to secure before its IPO would fund its future expansion projects.

And Uber and Lyft, two American-ride-hailing platforms, have been posting numbers that indicate at least a model recovery in the industry as coronavirus abates in several parts of the world.

Another reason why we believe it would hit is its dominance in the Chinese market. While many rivals have emerged in China recently, Didi retains overwhelming dominance in China’s ride-hailing market, which could be worth over 99.5 billion USD by 2023, as per Daxue Consulting, up from 53.5 billion USD in 2019.

Nonetheless, the mega IPO highlights the lucrative business opportunity the Asian tech giant presents to Wall Street’s big investment banks.

Didi’s Business Expansion

It is worth highlighting that Didi’s business is not limited to ride-hailing services. It carries a broader vision than that.

Cheng Wei, a technology whiz, who previously worked at Alibaba Group Holding Ltd, the e-commerce giant had founded Didi in 2012.

In 2015, he had merged with a domestic rival to gain scale. Now 38 years old, Cheng was worth over 2.8 billion USD last year, as per a Shanghai research firm Hurun Report.

Last year, Cheng Wei, founder, and CEO of Didi stated that the company is looking to have 800 million monthly active users worldwide and complete over 100 million orders each day by 2022, including ride-sharing, food, and bike delivery orders.

Notably, he owns 7% of Didi’s share and controls 15.4% of its voting power before the listing, as per the filing (9).

Didi’s other prominent investors include SoftBank Group Corp, with 21.5% holdings before the IPO, Uber, 12.8%, and Tencent Holdings Ltd, 6.8%.

At present, Didi operates in 14 nations outside China. However, its home market accounts for most of its journey.

A look at its smartphone app reveals a slew of its other offerings like bike-sharing, personal finances, gas stations, and other tied products.

The array of icons looks similar to that of Alibaba’s Alipay, whose app is a phone payment platform and the one that lets users pay for utilities and purchase airline tickets. Similarly, Southeast Asia’s Grab, another dominant ride-hailing platform, delivers food and aims to become a local leader in phone payment.

Eight Types of Vehicle Services

Didi is the dominant app for ride-hailing in China, even with the foray of several other players, including ones that focus on the energy vehicles, Cao Cao, and high-end vehicles, Shouqi.

It allows its users to choose from eight options, ranging from carpooling to luxury car service. Didi also allows users to hail taxis from its app and runs a chauffeur business that assigns drivers to car owners who cannot drive their cars because of consuming too much alcohol or other reasons. These temporary drivers travel between assignments on fold-up bicycles.

The company also runs a logistics service, allowing users to book vehicles with drivers to transport goods in or between main cities in China.

According to Didi’s prospectus, including its other services such as freight, e-bikes, and user costs for different services can run from 15 cents to over 100 USD.

Finance Arm Build Up

In its prospectus, Didi stated that its bike and electric bike-sharing contributed the most last year to its total revenue of 5.76 billion yuan from other initiatives. Other businesses in the category include automobile leasing, intra-city freight, community group buying, and financial services.

In August last year, the company had stated that its fintech arm, Didi Finance, not mentioned in the prospectus, has formed a partnership with the Bank of Shanghai for consumer financial services and other digital fintech products (10).

Notably, Didi has also collaborated with China Merchants Bank to support credit card applications via the ride-hailing app and offer EMI purchase plans for cars (11). In addition, Didi’s arm works with Ping An Insurance for selling financing, lease-related offerings, and insurance (12).

The company leases cars at prices it claims are over 20% lower than outside. While over 600k vehicles are available for lease, about half of these are owned by about 3k vehicle leasing partners, reducing the amount of the assets Didi is responsible for, stated the prospectus.

Did has also recently started promoting its mobile payment system to some users in Beijing by setting it as the default payment option, with a discount. Notably, it removed the discount if users manually selected other options like WeChat pay.

Didi’s ride-hailing application also works with international credit cards. It has also expanded its business to 15 other countries, including Australia, Japan, Brazil, and Mexico.

Bets on Electric Vehicles

According to several analysts, self-driving shared vehicles will be a major commute mode instead of individual car ownership.

Digi has invested in its autonomous driving unit, which launched “robotaxi” in part of Shanghai in June last year (13). In November, the Chinese company announced that it had co-developed an electric car with BYD called D1, which would launch to major cities in China in the upcoming months.

In May, the autonomous driving and state-backed GAC Aion New Energy Automobile partnered to work towards mass production of fully self-driving new energy vehicles.

According to Didi’s self-commissioned research, it also runs China’s largest electric vehicle charging network (14).

Why the United States Market?

Didi is one of several Chinese tech unicorns looking to go public in American markets even as Washington and Beijing tussle over several issues, including Taiwan, Hong Kong, and human rights.

Chinese unicorns considering or pursuing United States listings include ByteDance’s Douying, Ant Group’s Hello Inc, and Tencent’s Huohua Siwei.

Earlier in 2021, Grap, Singapore’s biggest ride-hailing company, had struck a 40 billion USD deal with a special purpose acquisition firm to go public in the United States.

According to Refinitiv Data, Chinese companies had raised over 12 billion USD from United States listings last year, which is more than triple the fundraising amount in the year before that. There are expectations that this year will comfortably surpass the previous year’s tally.

Investors are often intrigued by Didi’s directors, as they include Martin Lau, Tencent’s President, SoftBank’s Kentaro Matsui, Daniel Zhang, Alibaba’s Chairperson, and Apple’s Adrian Perica.

There are also suspicions that Apple’s electric car efforts are farther along than it let on based on both chatter that Apple is collaborating with CATL and BYD and its association with Didi.

Notably, Didi may be the only company worldwide that boasts both Alibaba and Tencent as shareholders as two rivals tend to avoid one another.

Notably, earlier this month, on 4th June, the Biden administration expanded a ban that forbids Americans from investing in Chinese firms that purportedly have ties with the Chinese military, raising the total number of blocked companies to 59 (15).

Notably, Didi has also acknowledged the risks in its prospectus, stating that there have been “surged tension in international economic relations.” It also mentioned United States-China trade disputes, coronavirus pandemic, and Hong Kong, among other issues.

“Such tensions between Washington and Beijing, and any escalation thereof may hurt the general, political, economic, and social conditions in China, and in turn, it will adversely impact the business, financial conditions, and operations results,”

stated Didi.

The filing indicates Didi’s opportunity. Notably, 70% of China’s population will be living in cities by 2030. Moreover, projections show that the high cost of car ownership in China is another factor pushing the current usage.

Below are some of the stats from Didi’s filings:

• 493 million active annual users
• 15 million active drivers
• 41 million daily rides

And all of it begs the question (16), why would Didi list in the United States?

1. While Hong Kong’s market is massive, it is nowhere near the United States market size. The value of trading of Alibaba, for instance, is 3.8 billion USD in the United States share class compared to its 733 million USD listing in Hong Kong.
2. Virtually none of US institutional brokers believe delisting driven by the HFCA; Foreign Companies Accountable Act will occur since there is too much money involved across the American stock exchanges, accountants, investment bankers, lawyers, etc.
3. The United States private equity firms usually prefer a United States listing since it allows them to exit with ease. Another factor is the valuation premium that United States tech shares command against other global markets.

Didi is a Mandarin-language reference to the beeping sound that a car makes for those who are wondering.