Didi, how the super project of global capital became the devourer of capital

Didi may be seeing the best listing window in the next few years

Investing more than 20 billion U.S. dollars, allowing tens of thousands of people to work overtime and overtime for nine years can accomplish many human feats. For example, spread the high-speed rail track from Beijing to Nanjing, build two international space stations in 400,000 meters of space, or create three Alibaba.

It may also be that a Didi was put on the market from scratch, and then watched it set off a storm.

Didi is the world’s company with the most financing in the private equity market, with more than $21 billion in 9 years. Until it went public, there were only a handful of companies whose investment could get half of it. From China to the world, from the renminbi to the U.S. dollar, from private equity to state-owned assets, the world’s money has put aside disputes and crossed borders and value systems.

Almost all the capital that can be thought of has basically come: first- and second-tier US dollar and RMB venture capital institutions; strategic investments by the three old rivals of Tencent, Ali, and Baidu; Chinese state-owned assets such as life insurance, Bank of Communications, and China Merchants; China Investment Corporation, the United Arab Emirates, Singapore’s sovereign fund. They helped Didi to complete the classic “subsidy-expansion-merger-monopoly” path of Chinese Internet companies in a few years and grow into a super travel platform that picks up more than 25 million people every day.

However, after this super project has swallowed a huge amount of capital, it has not achieved a super IPO, but has expanded into a gold swallowing beast that has swallowed more capital.

Four weeks after Didi’s listing, the market value of overseas-listed Chinese Internet companies plummeted by more than US$980 billion, which is equivalent to the disappearance of an Ali group out of thin air. Among them, the US$450 billion loss occurred after Didi went public and before the announcement of China’s “double reduction” policy for compulsory education.

According to the previous report of LatePost , in April and May this year, the regulatory authorities have communicated with several companies such as Didi who are preparing for an IPO in the United States. Most of them decided to postpone the listing, but the largest Didi continued to advance. A series of intense regulatory measures followed.

Two weeks after the listing, the registration of new users of Didi was suspended, and 26 related applications were removed from the shelves. Many ministries and commissions stationed in Didi to investigate the company’s data security management. The investigation is still ongoing.

Didi suffered huge losses, and its market value dropped by more than half, returning to 2016 levels.

On July 10, a new policy on strengthening the supervision of China’s concept stocks and improving the security management related to foreign listings was issued: Operators who have personal information of more than 1 million users going to list abroad must apply for cyber security review.

Internet companies that can go public are unlikely to have fewer than one million registered users. Under the new regulations, Internet companies will face stricter supervision and more complicated procedures if they go overseas to list. Overseas capital continues to invest in Chinese Internet companies, which will add new hesitation.

In the years when Sino-US economic cooperation was the closest, regulators, Internet companies, and overseas capital maintained a subtle and tacit understanding for a long time. Chinese Internet companies set up a VIE structure to introduce overseas investment, and when they grow up, they go directly to overseas IPOs, avoiding strict domestic listing requirements and foreign exchange controls.

During this period, China has built a unique information infrastructure in the world, which has promoted the prosperity of all kinds of consumption. Internet giants and their investors have also received huge returns.

But this tacit understanding has become thinner due to the differences between China and the United States in the past two years and the expansion of China’s local capital. A speech on the Bund in Shanghai a year ago, this time Didi IPO accelerated the disappearance of tacit understanding , which is the most direct proof.

Didi may be seeing the best listing window in the next few years

People who want to take a taxi waited in the sun and rain for half an hour on the streets. Such “tragic stories” were once a daily life in big cities in China.

Ride-hailing has changed all of this. Its appearance has provided the public with convenience and safety unimaginable in the taxi era. In China, this is mainly due to Didi. People seldom say “online ride-hailing” before going out. They will say “Didi”. Since 2016, Didi has monopolized the Chinese market.

According to “LatePost”, preparations for this round of listing will start around October 2020, which is probably the best time that Didi has seen in the past two years.

According to the prospectus, the number of Didi orders has substantially exceeded Uber’s global orders for three consecutive years. But because domestic taxis are too cheap, the total orders handled by Didi and the revenue drawn from them are only about 60% of Uber’s.

Didi, how the super project of global capital became the devourer of capital

Because the main business is very close to Uber, the capital market will evaluate the value of Didi against Uber.

Uber once expected to go public with a market value of 120 billion U.S. dollars, but it broke the market in 2019 and has been hovering between 40 billion and 70 billion U.S. dollars, and was even less than 35 billion U.S. dollars at one time. If you follow the same valuation logic, Didi’s value may only be 20 to 40 billion U.S. dollars-most investors will lose money.

However, the global outbreak has given Didi an opportunity to go public. The Fed released water and cash from nowhere poured into the stock market, sending all technology companies’ stock prices to the moon.

If you miss the carnival of the US capital market under the epidemic, most Didi investors, and even employees, may lose money because of stocks. After listing, investors need to wait six months before they can sell their shares. No one is sure when the US stock bubble will burst.

A person familiar with the matter told “LatePost” that some investors were also eager to realize cash. In the first half of 2020, some unexpected Didi investors transferred their shares at a valuation of 35 billion U.S. dollars.

By the end of October 2020, Uber’s market value began to rebound sharply and remained at US$90 billion-US$110 billion. Didi also confirmed its listing plan at that time.

Didi, how the super project of global capital became the devourer of capital

Even without the violent storms in July, Didi’s IPO is not a carnival like Ali, Meituan, and Kuaishou. Investors did not make much money.

According to the IPO price on June 30, Didi has a market value of US$67.1 billion. This means that at least half of the fund’s investors get an average annual return of less than 6% through the Didi listing. If you subtract the income commissions and fund management fees of investment institutions, the average return generated by this tens of billions of dollars is only slightly higher than that of Yu’e Bao-this is still before the plunge.

Based on the IPO price, the two investors that have received the greatest return from Didi are the two competitors acquired by Didi.

1. Uber. Uber’s holdings of Didi shares are second only to SoftBank, and they still hold 12% of the shares after listing, nearly twice that of Tencent. Subtracting the investment during the ride-hailing war, Uber earned 7.866 billion U.S. dollars on the day Didi went public.

2. Investors behind Kuaidi. Based on the pre-merger financing amount of US$800 million, Kuaidi’s investors had a floating profit of US$6.434 billion on the day of Didi’s listing.

Didi’s listing is quiet, not only externally, but also internally. It was not until the eve of the listing that Didi issued an announcement to employees announcing the listing, stating that there was no bell ringing ceremony or high-profile celebration. The reason is: “The listing is not the end, but the start of a new journey.”

Didi’s intranet also hardly saw posts discussing listings. Most employees have no reason to be happy because the company goes public. “If it’s not a very early employee, or the company’s management, it will basically have no chance of getting rich overnight,” said a Didi employee.

A grassroots employee who joined Didi in 2016 said that the cost of option exercise for him and his colleagues was about US$17-21 per share. In 2019, this number rose to nearly 37 USD per share. The listing price of Didi on the US stock market is US$14/ADS, which corresponds to an internal share price of US$56 per share.

Based on the issue price, ordinary employees below the director level received options in 2016 and the return was about 3 times. Around 2018, it can only make about 70%. For those who joined Ali three years before the listing, the options in their hands can generate 8.6 times the return on the day of the IPO.

Didi, how the super project of global capital became the devourer of capital
Didi, how the super project of global capital became the devourer of capital

Such a lackluster listing result is already the performance of the technology giant in catching up with the “perfect listing window.”

As the plunge began, the profits of all parties shrank sharply and even turned losses. Calculated based on the closing price on July 26, investors who started entering the market in 2016 and ordinary Didi employees who joined the company after receiving stocks have already lost money.

Big companies don’t necessarily have to go public at high points in the stock market. Huawei has not been listed so far, and it has a net profit of more than 60 billion yuan every year and dividends to its employees. Bytedance, which has an annual revenue of nearly 240 billion yuan, has also shelved its overseas listing plan, but it can turn losses into profits as long as it stops a few new projects.

But Didi no longer has such a luxury option. In the past three years, Didi’s operating losses exceeded 34 billion yuan.

Even if we only look at Didi’s five-year exclusive Chinese online car-hailing business, Didi only has an EBITA profit margin of 3.1% (excluding taxes, employee equity incentives and other expenses). This is not only inferior to the “mint” opened by Tencent, Ali, and Byte, or even Meituan, which is known for its hard-earned money. Meituan Waimai, while coping with hunger, still managed to achieve 4.3% operating profit last year.

Relying on capital “quick victory” is the beginning of all problems

Two “Wall Street Journal” reporters wrote in a new book about WeWork that SoftBank founder Sun Zhengyi once invited Didi founder Cheng Wei and WeWork founder Adam Neumann to dinner in Tokyo. During the dinner, the investor who has been accustomed to victory and defeat summed up the ride-hailing war in the Chinese market like this: Didi was able to defeat Uber not because Cheng Wei was smarter than Travis Kalanick (the founder of Uber), but Because he is crazier.

However, at the beginning of the war, Didi was not crazy. It is precisely because Cheng Wei abides by policies and regulations more than his opponents that Uber China has a chance to rise.

Uber officially entered China in early 2014. At that time, Didi and Kuaidi had obtained funds and traffic from Tencent and Alibaba, respectively, and used high subsidies to compete for taxi users. During the Spring Festival that year, WeChat red envelopes enabled hundreds of millions of Chinese people to use mobile payments. A participant in the taxi-hailing war recalled that Didi, which received investment from Tencent and connected to WeChat, was able to add 1.2 million new users every day at that time. Several times faster.

Uber, which has just entered the Chinese market, only provides private car services. No one thinks that such a foreign company’s special car product that is priced much higher than that of taxis and does not support WeChat and Alipay when it goes online can make waves in such a war.

However, Jiang Zhiya, the city manager of Uber Beijing and a Chinese who grew up in the United States, saw new opportunities in the “Opinions on Carpooling in Beijing” issued by Beijing on New Year’s Day in 2014. At that time, Beijing encouraged carpooling to reduce air pollution and ease traffic congestion. Jiang Zhiya then suggested to Kalanick to launch an ultra-low-cost private car carpooling service in China.

After half a year of repeated discussions and preparations, Uber used five-star red, red sun, and other elements that would make Chinese people feel a little unnatural at the time, and packaged a “charity carpool” to serve the people. Uber was launched in Beijing in August-but apart from There is no commission on the platform, and Uber’s so-called carpooling is no fundamentally different from the later Didi Express.

Legend: The product that made Didi pay 7 billion U.S. dollars
Legend: The product that made Didi pay 7 billion U.S. dollars

At that time, Chinese policies and regulations banned private cars from providing operating services. Local Chinese companies do online car-hailing, and they are all positioned in private cars-the price is a bit higher than that of taxis to avoid regulatory concerns.

“When I started special cars, I had communication and promises with the government to only do high-end markets that are 30% higher than the price of taxis.” Luo Wenshi, then product manager of Didi Taxi, recalled in an interview with “Chinese Entrepreneur” .

Earning profits with high-priced private car services and avoiding direct competition with taxis allowed Didi to win the recognition of some local governments at that time.

But as soon as People’s Uber went online, the price was 30% lower than that of taxis. And cheap enough to tear apart all the moats.

Regarding the vast majority of foreign companies in China, such matters that are legally inaccurate and revenue risks cannot pass the Legal Department. Uber is not a typical foreign company. It has had direct confrontations with government agencies in every city and state in the United States. Uber has not only developed a secret system to help drivers evade supervision and enforcement, but also popped up a window to name the mayor of New York, calling on drivers and passengers to oppose the network that the city is discussing. Car-hailing supervision proposal.

After People’s Uber went online in Beijing, it once provided drivers with a subsidy of more than 20,000 yuan per person per month, and reimbursed drivers who were investigated by the transportation management department in full (sometimes as high as 30,000 yuan). In Hangzhou, Wuhan, Tianjin, Chengdu and other places, there have been group incidents in which drivers and traffic law enforcement officers confronted each other. But the Ministry of Transportation did not take severe measures to stop Uber’s new business in China.

There are also supporters of the development of online car-hailing within the regulatory department. At the beginning of 2015, Zhang Guohua, the dean of the Urban Center Comprehensive Transportation Research Institute of the National Development and Reform Commission of China, wrote in Caijing magazine that taxi companies have achieved monopoly in various places, resulting in three losses for taxi drivers, passengers, and municipalities. He believes that online car-hailing, as a more effective order distribution mechanism, has the hope of improving the efficiency of the entire market.

A foreign company judged the boundaries of regulation more accurately than a local giant and opened up a larger market. When Didi and Kuaidi ceased the war and merged in early 2015, People’s Uber has been rolled out in more than a dozen cities across the country, and it has grown into an urgent threat to Didi with ultra-low prices and subsidies.

After several months of hesitation, Didi launched a similar product Didi Express in May 2015, starting a new round of subsidy wars. After another year, with the support of investors from both sides, the two sides began peace talks.

During the peace talks, Uber received a huge amount of US$3.5 billion in financing from the Saudi sovereign fund and had the capital to continue the war. In the end, Didi accepted a 20% stake (equivalent to US$7 billion at the time) to buy Uber’s US$2 billion China business. Uber also became Didi’s largest shareholder for a time.

After the acquisition of Uber, Didi CEO Cheng Wei and President Liu Qing issued a letter to all employees, calling it an “epic showdown.” And the cruelest duel often makes the two participating parties become more like each other.

Uber learned to send commercial spies to infiltrate rival companies.

In early 2016, Uber recruited a former CIA agent to form its own Strategic Intelligence Group (SSG) to spy on rival intelligence. According to the information reported in a subsequent lawsuit with Google, Uber’s intelligence personnel will track rival executives, eavesdrop on private conversations, and even follow Liu Qing when she participates in a technology forum in the United States when she hears that Uber is raising funds from Saudi Arabia 35 The reaction to billions of dollars-it is hard to imagine how important strategic value this is.

Didi is more aggressively playing a game with regulators, testing the bottom line of regulators at all levels.

Didi has become better at playing with supervision

After Uber China merged with Uber China on August 1, 2016, Didi ended its last obstacle to dominating China’s online car-hailing market, and it also planted hidden dangers for subsequent regulatory issues.

Two people familiar with the matter previously told Caijing magazine that one month before the merger of Didi and Uber China, the Anti-Monopoly Bureau had confirmed to Uber China whether a merger was possible, and the answer was-no merger. A week before the merger, the Ministry of Transportation of China contacted Didi and Uber China to confirm that they were still told that they would not merge.

On July 28, 2016, three days before the merger, the Ministry of Transportation announced the “Interim Measures for the Administration of Online Taxi Booking Service”, which gave the legal status of online car-hailing and abolished two stringent requirements in the previous draft: online car-hailing Changed to “operating vehicle”, scrapped in eight years; the platform signs a full-time labor contract with the driver. This has significantly reduced the compliance costs of online car-hailing platforms.

Three days later, Didi and Uber China announced their merger.

Deng Feng, a professor at Peking University Law School, said in an interview with Caijing that the Ministry of Transportation has changed its attitude and started to support the orderly development of the online car-hailing market, but hopes to allow a few years for the transition of traditional taxis. He believes that the merger of Didi and Uber China will greatly damage the development of the local car rental market, and at the same time, it will attract a strong backlash from the regulatory authorities.

On the second day after the merger transaction was announced, the Ministry of Commerce stated at the press conference that it had not received the declaration. The following month, the Ministry of Commerce launched an antitrust investigation into the merger of Didi and Uber China. Article 3 of the Regulations of the State Council on the Standards for Declaration of Concentration of Undertakings stipulates that if the total turnover of the two parties to the merger in the previous fiscal year exceeds RMB 2 billion, and the respective turnover of both parties exceeds RMB 400 million, they need to declare first.

Two months later, Beijing, Shanghai, Guangzhou and Shenzhen took the lead, and dozens of cities issued online car-hailing management rules, most of which strictly restricted local license plates and stipulated vehicle size or displacement. Beijing and Shanghai directly require drivers to have local household registration. The relatively loose management framework of the Ministry of Communications has been implemented nationwide with strict regulations.

Shanghai was originally a city that was more open to online ride-hailing. In October 2015, the Shanghai Municipal Transportation Commission issued the country’s first special car operating license to Didi, and it does not require drivers to have local household registration. In an earlier interview with Caijing magazine, a person familiar with the matter said that Didi had repeatedly promised not to let express trains enter Shanghai for this reason.

Judging from the situation at the time, Didi could not fulfill its promise. In 2014, after four years of operating in the United States, Uber has made it clear that only if it is cheaper than a taxi can it build a ride-hailing platform worth tens of billions of dollars.

With the fierce competition with Uber, Didi quickly changed its mind and let the express train into Shanghai. So far, Didi Express has not officially obtained an online ride-hailing license in Shanghai.

Until June 2021, when the Shanghai Qingpu District Transportation Commission announced a penalty, it also notified that Didi Chuxing did not have a Shanghai online taxi booking license. Previously, regulatory authorities in many places have also notified that Didi drivers did not hold dual certificates to work and were punished by local supervision.

According to data from the Ministry of Transport of China, in June 2021, only 30.7% of the vehicles on the Didi platform were compliant, while the proportion of drivers who were compliant was 45.2%.

If implemented in strict accordance with local standards, in many cities, Didi can only accept people who have a local household registration or have lived for several years to drive online car-hailing (the size of the driver is limited); the vehicles used are also restricted to B-class cars (the driver’s cost increases). Didi relies on non-compliance to enter the market of one city. Although it faces various policy risks, it has accepted more drivers and supported 25 million daily orders.

For a long time, Didi has repeatedly tested the bottom line of the regulators, and then made maneuvers. Take two steps and take a step back to fight for more room for development.

However, in these games, Didi did not really solve the problem, only delayed the arrival of the problem.

Didi first hopes to list on the Hong Kong Stock Exchange. However, the Hong Kong Stock Exchange has strict requirements for compliance operations. Dida, which only deals in taxis and ride-hailing businesses, submitted a prospectus to the Hong Kong Stock Exchange twice, but was not approved for listing after more than half a year.

The business compliance issues that were set aside in pursuit of growth earlier led Didi to be unable to list in Hong Kong. In the end, it could only choose New York, which immediately triggered a security investigation by the relevant national departments.

Nearly five years have passed. The anti-monopoly investigation initiated by the merger of Didi and Uber China has been transferred from the Ministry of Commerce to the State Administration of Market Supervision and Administration. The investigation has not yet been closed before the listing.

Inseparable Didi Partner

In the half-month after listing, Didi employees have become increasingly frustrated. Most of them do not know what kind of negotiations the company went through before going public. They can only use the news to see that the company’s regulatory orders have been issued one after another, and the stock price has repeatedly hit new lows. Employees began to guess which boss made the decision to force the company to go public and put the company in such a predicament.

Some people think that whoever has the most voting power is in charge. Cheng Wei has 35.5% of the voting power, which is nearly half more than Liu Qing. Some people think that Liu Qing, who has promoted multiple rounds of large-scale financing, is the one who is more eager to get the company listed.

In most Internet giants, this is not a question that employees need to guess. However, one of Cheng Wei and Liu Qing is the CEO and the other is the president. What is the difference between these two positions? None of the employees of Didi at different levels that “LatePost” has contacted can make it clear.

Cheng Wei took a 700,000 yuan angel investment from Wang Gang who also left Alibaba in 2012 and founded Didi.

The founder likes to describe the challenges he faces with historical war scenes. He injected the culture of operating locations absorbed by Ali into Didi, which was not yet favored by capital at the time. Senior executives evaluate performance every month, and those who do not meet the standards must wear underwear and run naked. Until the 2015 annual meeting, most of the Didi employees present were operating and offline personnel, and the lottery was paid directly to a bundle of cash.

In the early days of entrepreneurship, this powerful organization defeated one after another opponents who entered the market earlier and even had more funds. Cheng Wei can often show a calm side in the most difficult times. At the end of 2013, Ali’s support quickly took advantage of financing. Cheng Wei went to the United States to meet investors and did not get the money, but he called the team at the airport and said that today is going well.

Didi is not only the background color painted by Cheng Wei alone, but Liu Qing has played a vital role in this company.

In 2014, two years after Didi was founded, Liu Qing joined the company as COO and was promoted to president the following year. The founder letter in the Didi prospectus tells the story of a partnership to start a business: In 2012, Liu Qing, the youngest managing director of Goldman Sachs, moved back to his hometown of Beijing, because he did not have a license plate and often worried that his children would be trapped in rain and snow. After getting to know Cheng Wei and meeting with Cheng Wei’s family, “I am sure he is a good person”, Liu Qing quit his job and started a common journey.

The outside world generally believes that Cheng Wei is more proficient in business, while Liu Qing is better at external affairs and investment.

Less than half a year after joining Didi in 2014, Liu Qing received US$700 million in financing from Temasek, DST and Tencent. After that, Cheng Wei led the business team to confront Uber’s “blitz” (his own summary), Liu Qing and Didi Strategy Director Zhu Jingshi brought rounds of huge financing to the front-line team and handled increasingly complex investor relations.

Zhu Jingshi was previously engaged in private equity investment at Goldman Sachs. He was a colleague of Liu Qing and was invited by her to join Didi. They even won a rare investor, Apple. Apple rarely makes equity investments, but prefers to directly acquire a company and integrate its technology or team into its existing software and hardware products. But Apple invested US$1 billion in Didi in 2016 to “help itself understand the Chinese market”.

After the acquisition of Uber China, Didi introduced a number of executives with financial backgrounds, and Liu Qing also had a say in business.

A former Didi executive said in an interview with “LatePost” earlier that he reported important things to Cheng Wei and Liu Qing at the same time. “If two people cannot be present at the same time, report to one person first, and then report to the other person again with the same content.”

But the report does not see who has the final say, because the separate report must also be a result. “The two of them seem to be able to speak on behalf of the other party.” The above-mentioned executive said. Based on this, he guessed that Cheng Wei and Liu Qing “must be synchronized several times a day behind their backs, and talked about all kinds of things. Otherwise, it would be impossible to have such a tacit understanding.”

What’s even rarer is that employees, including senior employees, almost never saw the process of peacekeeping and Liu Qing disagree. An employee of Didi said that the only way he had seen the most disagreeable relationship between the two was: “We will discuss it separately after the meeting.”

The two can always maintain such perfect peace and consistency, which is rare in any company.

After Liu Qing joined, Didi also introduced a number of young executives with financial backgrounds: Alan (Excellent), Tony (Chou Guangyu) and Kevin (Chen Xi). “ATK” was once considered to be the three fastest and most outstanding young managers of Didi, and two of them have already left. Very few Chinese Internet companies hire financial professionals to manage their businesses, and only Uber among the largest Silicon Valley companies does this.

Didi divides its business by business unit. The online car-hailing and Xiaoju car service businesses have their own CEO and technical team, which are relatively independent. Didi Group controls each business through the “sugar triangle” mechanism, that is, the group directly manages the strategy, finance, and human resources of the business departments. The headquarters will communicate the new strategy to the business department, and then supervise the budget and personnel changes to ensure that the strategy is implemented. All three parts report to Liu Qing.

The improvement of Liu Qing’s status can be seen in the changes in equity.

The shares and voting rights held by Cheng Wei and Liu Qing were nearly ten times different. At the beginning of this year, Cheng maintains a 2.9% stake in Didi and Liu Qing holds 0.3%. But in April, Didi issued 66.71 million additional stock incentives to its executives (worth 24 billion yuan at the time of IPO). Among them, Cheng Wei’s shares are about 17 billion yuan, and Liu Qing is about 5.8 billion yuan.

It’s not uncommon for large companies to issue tens of billions to executives. But Didi did not bring the most ideal return to the investors. At this time, there is still such a transaction, which shows that the initiative is in the hands of the management.

After the issuance, Cheng maintains shares increased from 2.9% to 7.0%, and Liu Qing’s shareholding increased from 0.3% to 1.7%. After listing, the voting rights of both parties will be 35.5% and 22.8% respectively. The gap in voting rights between the two has narrowed significantly.

In many companies, such a shareholding structure means that one of the parties is likely to cooperate with external investors to lead the company’s decision-making-Liu Qing plus SoftBank and Uber have more than 40% of the voting rights.

In Didi, this cannot happen because it has a mechanism of checks and balances. The prospectus disclosed that Didi has implemented a DiDi Partnership system. Currently, there are only three founding partners, Cheng Wei, Liu Qing, and Zhu Jingshi, and no more than 5 people are at most.

Didi partners have great powers. They can appoint or dismiss the company’s executive directors, nominate and recommend candidates for the company’s senior management positions, etc. This is generally decided by the board of directors in other companies. And Didi wrote in the prospectus that “these rights may affect certain decisions of the board of directors.”

When Didi partners pass a resolution, they must have 75% support. In other words, every resolution must be passed by three people unanimously, including the election of the CEO.

Even when compared with Alibaba, which is famous for its partner management system, Didi’s partner system is more extreme-limiting a smaller number of people and more concentrated power.

The pre-IPO equity adjustment, coupled with the unique partner system, has established an inseparable dual brain for Didi.

Big capital needs high returns, but Didi hasn’t found so much room for growth

In the year after the successful merger of Uber’s China business, Didi’s confidence reached its peak.

It is understood that once Didi had an internal dinner, Liu Qing asked people around him: “How big is Didi in your imagination?” Liu Qing then said that Didi would become a company with a market value of more than one trillion US dollars.

This kind of expectation is also the goal of the capital injection of 21 billion U.S. dollars-to unify the travel market and establish another super technology giant after Tencent and Ali.

According to the initial vision of venture capital, online car-hailing is a business with unlimited growth prospects. They believe that the experience and efficiency are much better than taxi products, which will allow people to take more taxis, drive less, and ultimately buy less cars.

This seems to be the case at the beginning. Both Didi and Uber have disrupted the taxi industry at an unimaginable speed, and both reached a valuation of more than US$20 billion in the fourth year of their establishment. This is still an unattainable figure when the U.S. dollar is more valuable.

But online ride-hailing is not the same as other Internet businesses. Its growth needs to take up space on urban roads. When online ride-hailing exceeds a certain scale, it will aggravate urban congestion.

According to the annual tracking data of the Beijing Transportation Development Research Center, in 2015, Didi and Uber launched an online car-hailing battle in Beijing. That year, the average daily road congestion time in Beijing’s urban areas jumped from 1 hour 55 minutes to 3 hours. After that, in addition to clearing out non-Beijing-brand online car-hailing in 2017, the annual congestion duration has remained around 3 hours.

Didi, how the super project of global capital became the devourer of capital

This is the problem of the entire online car-hailing business model.

“Nature” magazine published this year’s analysis of MIT researchers on 44 cities in the United States. Online ride-hailing led to a 9% reduction in public transportation usage and a 4.5% increase in urban congestion. One reason is that as more people start online car-hailing, 40% of the car-hailing mileage is empty without passengers.

When the growth of online ride-hailing starts to reduce the efficiency of the entire city, its total amount will be restricted by administrative supervision-more capital injection cannot be exchanged for more income growth.

Drivers don’t have much income to share with Didi.

In the first quarter of this year, 37.6 billion yuan was allocated to drivers in taxi fares and subsidies. Suppose there are 3 million Didi drivers taking orders every day. Counting down, if a driver works full-time, the average monthly income is less than 4,200 yuan when included in the subsidy-and the expenses for buying a car, renting a car, refueling, and repairing the car have to be deducted.

Drivers don’t make money, driving for Didi is a very low-profit hard job. The drivers are also very aware of how the platform’s algorithms and rules are using themselves. “If you don’t accept discounted special orders, Didi will not arrange good orders that can make money.”

In this way, Didi’s online car-hailing business deducts taxes, equity costs and other expenses and does not make much money.

Legend: Didi’s draw ratio is gradually approaching Uber, which was commercialized earlier
Legend: Didi’s draw ratio is gradually approaching Uber, which was commercialized earlier

On the one hand, there is a market that cannot rise, on the other hand, investors who have burned a lot of money waiting to see the return. In order to expand the market, Didi tried every means.

In the past five years, Didi has continuously adjusted its order dispatching algorithm in an attempt to increase platform efficiency. There are more and more taxi-hailing options in front of users. By the end of last year, passengers who opened Didi had more choices to call a car than they had to change their phones every year: Hitchhiking, Green Cabbage Carpool, Special Express, Didi Long-distance Special, Express, Kuaishi Rental, Optimal, Licheng Special Car , Six-seater business car, luxury car.

But Didi’s online ride-hailing orders have not changed for many years.

In an interview with Caijing at the end of 2016, Cheng Wei announced that the Didi platform could complete 25 million travel orders per day.

According to Didi’s prospectus, in the first quarter of 2021, the average daily order volume of Didi’s travel business in China will still be 25 million-including online ride-hailing, taxis, ride-hailing, and agent driving, excluding shared bicycles, freight, etc. business.

A manager of a small Internet giant told “LatePost” that Didi is a health company that already has a platform effect by looking at the online car-hailing business alone. The crux of the problem is that Didi has raised too much money in the early stage, and the capital is looking forward to greater imagination and more lucrative returns.

Didi has a bigger story. In its prospectus, it describes a future of travel worth 6.7 trillion U.S. dollars-which is more than the GDP of the whole of Japan in one year, including all taxis, car rentals, car purchases and even public utilities in the world. transportation.

Didi launched Xiaoju car service in 2015: a product that helps car owners connect with services such as maintenance, insurance, refueling and charging. In the second year, Xiaoju Car Service launched a car rental service similar to Shenzhou Car Rental. In 2020, Chen Ting, the former leader of Didi Express, took charge of Xiaoju’s car service and launched a long-term rental service-users spend thousands of yuan a month, renting for up to one year at a time, and long-term rental instead of buying a car.

According to “LatePost”, the progress of the business change is not as expected. Xiaoju Car Service has abandoned the long-term rental route and reduced it to the original state, providing drivers with car rental, maintenance, repairs and other services.

In addition to Xiaoju’s car service, Didi also launched its own driving service in 2015, explored autonomous driving in 2016, and launched bike sharing in 2018. In 2020, before going public, Didi started intra-city freight and invested heavily in community group buying business before Meituan and Pinduoduo.

Orange Heart Optimal is Didi’s most important new business in the past year, and it has been mentioned 124 times in the prospectus. However, as Meituan and Pinduoduo rushed into the market, community group buying turned into a money shredder, and Didi’s first-mover advantage did not last long.

Since the end of March this year, Didi has divested its heavily loss-making community group buying business from the listed entities and split financing. According to Didi’s report, the revenue from community group buying business was “not significant” in the first quarter of 2021.

No new business has grown to become the backbone of Didi. China travel still accounts for more than 90% of Didi’s revenue. The market value corresponding to its issue price has also been reduced from the initial 80 billion-100 billion US dollars to 675 US dollars.

To achieve this scale of online ride-hailing, Didi still needs to maintain high growth. It is no longer something that can be solved by overtime and optimized algorithms. It requires Chinese people to have more money to spend on taxis, to allow a larger proportion of the population to live in cities, and to have smoother roads in the cities-this will not happen in just a few years.

But this company had to try to fulfill the growth logic of the Internet in a slow business. The investment of more than 20 billion US dollars is no longer a help, but a shackle. Listing is a solution, and the location is only the United States.

A competitor that never disappears

Didi’s growth has been accompanied by the fiercest competitive environment. From Kuaidi to Uber, Didi PK lost countless opponents. A company that has been established for a few years has to coordinate BAT and coordinate the capital of the world, and has to face “encouraging innovation, prudence and tolerance”, but still strict policy supervision.

The above is the summary of Didi’s founder Cheng Wei in an interview with Caijing magazine in 2017.

In that interview, Cheng Wei stated that the ride-hailing competition ended after the acquisition of Uber China in 2016. In 2017, Didi’s focus was on internal skills.

A former Didi executive recalled that period of time and said, “The acquisition of Uber China has a great impact on everyone. In terms of mentality, everyone feels that there is no competitor. In fact, we later discovered that this is not the case. There are many hidden dangers. .”

Soon, car-hailing platforms such as T3, Shouqi, Cao Cao and other car companies, and platform companies such as Meituan and AutoNavi entered the Didi market. They have not been able to shake Didi’s dominance, but they have also constrained Didi, making it difficult to make a profit.

In 2018, a rider passenger was killed, and ten ministries and commissions settled in Didi to investigate. While working hard to rectify and improve platform security, Didi also announced that online car-hailing will be suspended for 6 hours every night for a full week. People complain about the difficulty of getting a taxi on social networks.

At that time, Didi overcame the difficulties and completed safety rectification. Although the monopoly position is still monopolistic and the regulatory zone is still blurred, competitors did not get many opportunities. In an environment that encourages development and pursues efficiency above all else, this seems to be a matter of course.

As the American technology critic Jaylen Lanier said, some companies “have become indispensable before they become a sustainable business.”

“Today, any new player who wants to grab Didi’s market share will have to pay a greater price than Didi.” On the eve of its listing, many Didi employees expressed similar views on “LatePost”.

However, with the advent of supervision, almost all of Didi’s online ride-hailing applications have been removed from the shelves, and competitors such as AutoNavi, Meituan, T3, Cao Cao, Sunshine Travel, and Xiangdao are approaching again, and another car-hailing war is gradually taking shape.

Today, no company or industry may be considered indispensable.

– END –


Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/didi-how-the-super-project-of-global-capital-became-the-devourer-of-capital/
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