Didi is a formidable company, just unfortunate to be born in China

Didi, China’s leading ride-hailing platform, is filing for IPO, finally. 

There are already quite a number of reports and commentaries on this, and you can find tonnes of information in its original prospectus here. 

We are not going to bore you with the details you can find elsewhere. But here are some of our thoughts: 

1. The reported US$100 billion valuation target seems to be a stretch. Didi reported US$21.6 billion revenue for 2020 – but that ‘revenue’ is actually gross bookings / Gross Transaction Value / GMV. Five times GTV is expensive.
2. In comparison, Uber reports the commission (i.e. fare minus driver payout) it receives as revenue. Didi calls this metric “Platform Sales” in its prospectus.
3. Didi’s international markets are rather small: 6.6% of “Platform Sales” or 1.9% of “revenue”. Depending on how you look at it – it is either a failure of expansion or massive untapped opportunity. Based on what we know about Didi’s execution, we think the latter is more plausible. 
4. This means Didi will surely pour a good part of its IPO proceeds into expanding in international markets.
5. The fact that international markets represent a higher percentage of the group’s “Platform Sales” than “revenue” means it has a harder time imposing good unit economics in China, its core market. 
6. Didi is a strong company and a seasoned fighter – the only reason why it finds it hard to expand into other services (whilst Grab and Uber have all ventured into food delivery successfully) is because it is in China. 
7. In China, each area it tries to expand into has strong incumbent players. Didi tried to enter food delivery as well, but Meituan, equally if not more battle-hardened, is already there. 
8. Similarly, Didi’s new forays into bigger potential areas such as community groupbuy are facing strong competition from Meituan, Pinduoduo and other players as well. 
9. With 377 million users in China in 2020, Didi pales as a consumer internet platform compared to Meituan (511 million) or Pinduoduo (788 million). 
10. It is unlikely that Meituan or other tech majors will venture big into ride hailing – but that also means that they will ensure Didi does not go beyond ride hailing. 
11. Autonomous driving is hard to predict (when it will happen, who will lead) – investors can bet on it depending on their risk appetite.