Didi’s medium- to long-term powerhouse

The money from the IPO financing is going to the whole backbone.

Didi's medium- to long-term powerhouse

Before the IPO, Didi was a China-based online car company; after the IPO, Didi will aim to be a global mobility solution provider.

Didi will take out 60% of its financing to bet on the future.

From 2018 to 2021, the long-rumored and finally implemented, Didi’s net profit for the first quarter of 2021 was 5.483 billion yuan, so Didi chose to go public.

According to the current trend development, Didi’s IPO, will most likely be the largest IPO in the technology circle this year, the listing has been finalized, Didi’s development is also about to enter the era of transparency, all operations will soon be under the supervision of the public market, then the use of the listed financing will be a very important wind, which will directly indicate Didi’s future development focus.

As for the use of the proceeds, Didi disclosed in the prospectus that it plans to use approximately 30% of the proceeds to expand its business in international markets outside of China; approximately 30% of the proceeds to enhance its technology capabilities, including shared mobility, electric vehicles and autonomous driving; approximately 20% to launch new products and expand existing product categories to continue to enhance the user experience; and the remainder may be used for operating The remainder may be used for operating capital needs and potential strategic investments.

In layman’s terms, Didi’s short- and medium-term goals after the IPO are 30% to develop overseas markets and globalize; 30% to bet on future mobility models; 20% to stabilize its existing business; and 20% to reserve funds for contingencies and other potential investment opportunities.

The pre-IPO Didi, if it is an online car company dedicated to the Chinese market; then the post-IPO Didi will aim to be a global travel solution provider, and Didi will put aside 60% of its financing to bet on the future.

In this betting process, Didi’s short-term opponent is Uber, while the long-term challenge will probably be more driverless players.

How far Didi is from globalization
Didi and Uber, two companies that are inseparable from the global travel industry, have both tried to do business in each other’s home base, but both ended up unsuccessfully.

Next, a comprehensive comparison of these two travel giants can be made.

In terms of coverage area, Uber is more dominant. According to Didi’s prospectus on June 10, Didi currently covers 15 countries and nearly 4,000 cities and towns, while Uber currently covers 80 countries and 10,000 urban areas around the world.

However, Didi is more dominant in terms of the number of users. 493 million Didi’s annual active users, leaving 125 million after throwing out the 377 million annual activities in China; while Uber’s annual earnings report for 2020 shows that Uber’s global user base is 93 million in 2020 and 110 million in 2019, down 16% overall from the previous year.

In terms of revenue, Didi’s total global revenue in 2018, 2019 and 2020 will be $135.288 billion (about $21.1 billion), $154.786 billion (about $24.2 billion) and $141.736 billion ($21.633 billion) respectively, while Uber’s revenue in the past three years was $10.433 billion, $13 billion and 11.139 billion U.S. dollars. This gap actually has a lot to do with the calculation methods in China and the United States. In China, Didi’s online taxi business adopts the gross method of accounting for revenue, which includes fees paid to drivers, while overseas it adopts the net method of accounting, with platforms like Uber acting as an agent whose revenue is net commission revenue net of driver revenue, and the actual platform aggregating total transaction volume (GTV), which Uber has to outperform Didi, which in 2020 was 214.6 billion ($32.8 billion), compared to $57.9 billion for Uber over the same period.

Next, let’s look at the respective revenue scenarios that throw off the home base, that is, the real overseas business. the Didi prospectus shows that the total transaction volume (GTV) aggregated by the international business in 2018, 2019 and 2020 is 7.917 billion yuan, 22.956 billion yuan and 25.584 billion yuan, and the realized revenue is 318 million yuan, 1.898 billion yuan and 2.293 billion yuan respectively . At present, Didi’s international business still has a certain gap with Uber, which deducts more than $3.4 billion in revenue in North America, a piece of Didi and Uber use the same calculation method.

Didi, on the other hand, is showing signs of catching up with Uber in terms of market capitalization. According to Bloomberg sources, Didi’s market cap in the non-public market has reached $95 billion; while Uber is valued at $82 billion in its 2019 IPO, as of yesterday’s opening, Uber’s market cap was $92.746 billion.

From the current global scope of the travel market, almost all major regions have local travel companies, India has Ola, Southeast Asia has Grab, Uber and Didi in the global scope of the tug of war by way of investment or direct entry, but at present, the global scope of travel domination has not really appeared.

Uber’s coverage is broader aggregated revenue is greater, but in the number of users compared to Didi to much worse, the middle reason is actually very simple, because Didi guard the Chinese base camp this gold mine, China’s huge local market is no way to compare with other markets, including North America.

Why did Didi allocate 30% of its fundraising to expand its business in international markets outside of China? Because essentially, Didi’s story in China’s current online taxi market is basically finished, and there are only two incremental pieces to the future: one is the short- to medium-term overseas expansion, and the other is the long-term revolution of the autonomous driving era.

If the overseas market is doing well, then the number of users, the transaction amount of various indicators can continue to grow a lot more upwards, the Internet story is always afraid of the ceiling, as long as less than the ceiling, short-term losses can call back the high-speed growth, capital is willing to cooperate, Poundland and Meituan are very good proof of this point.

And Didi’s battle with Uber overseas has actually been fought long ago. 2020 Q3 Uber’s market in Latin America shrunk by 40%, Didi has overtaken Uber in several countries. In addition to several highly competitive regions in North America, India and Southeast Asia, Didi will compete with Uber in other regions such as Western Europe, the Middle East and Africa in a full-scale competition.

Why bet on self-driving
What exactly is the future of transportation? Why are all the car manufacturers betting on electric cars and driverless? Why are online car platforms like Uber and Didi also betting on this track?

The conclusion of the analysis together is that the future travel market, in the eyes of car manufacturers will definitely be electric cars plus driverless, while in the eyes of travel platforms, in addition to the above two possibilities, the concept of private cars may disappear, all cars are connected to the car network state, we share all the cars running on the road, everything depends on the platform to allocate capacity.

According to Didi prospectus, in 2020, the world mobile travel market size is USD 6.7 trillion, but the penetration rate of shared travel and electric cars is only 2% and 1%.

By 2040, the world mobile travel market will reach $16.4 trillion, and the penetration rate of shared mobility and electric vehicles will reach 23.6% and 29.3%, according to CIC (China International Capital Corporation). in 2040, China’s mobile travel market will reach $3.9 trillion, and the penetration rate of shared mobility and electric vehicles will reach 35.9% and 50.2%.

LuJiu Finance has exchanged driverless related topics with a former Tesla marketing employee, in his opinion, future cars must no longer need to be driven by people, or even not allowed to be driven by people. When the relevant technology matures, as long as the network security issues are circumvented, autonomous driving will definitely have a lower accident rate than today’s manned driving, and it is much lower.

Electric and driverless trend is already irreversible, Ningde Time and BYD’s stock price trend has been a good illustration of this, Geely also made a lot of investments in these industry chain companies in Fu can, Didi and Uber such companies, must do, because they do not do, the future is the whole car factory to do.

Klaus Stricker, an analyst in the field of autonomous driving from the United States, and six others said that for manufacturers, after the shift from fuel to electric vehicles, the next change will be the transition to driverless cars. It’s safe to say driverless cars will likely be the next hot track for electric vehicle companies to enter, and some companies in Silicon Valley are already making a push in the space. Analysts expect to see a high point for self-driving cars by 2028. It’s not hard to predict that self-driving highways will emerge in the next eight years, and self-driving fleets will appear in urban areas.

In other words, the industry actually has a prediction for the development trend of the travel industry, and the next thing is to see who takes this market.

The future of the cab or network car, the probability will be to rely on algorithms to manage the operation of the form of unmanned vehicles, such a situation is not only more efficient to improve the efficiency and capacity, but also save a lot of costs, after all, do not have to pay high wages of labor.

However, whether it’s Uber or Didi, if they don’t seize this opportunity, they will be replaced by companies with relevant technology. Even today, traditional car companies like Geely and BAIC have started to intervene in this track to grab the market, and once their technology matures, Didi and Uber’s technology will fall behind and the industry will definitely be overturned.

Therefore, Didi is using 30% of its fundraising to improve its technical capabilities, including shared mobility, electric vehicles and autonomous driving, in fact, it is betting on the next era of travel, because this era is no longer unattainable as it was ten years ago, electric vehicle technology is already very mature, L4 level autonomous driving has also been civilian, the era of autonomous driving has already touched off.

The founder of Electric Planet, Mr. Crab, said that any company related to cars will not be absent in this field, no matter Didi or host manufacturers, because in the future market, it is highly likely that there will be an integrated situation of R&D, manufacturing and operation.

However, on this road, there are also many players who hold relative views, such as Uber and Lyft, which have sold their self-driving divisions long ago, because many believe that the era of autonomous driving may not come even after twenty years, and the investment cycle is too long.

Didi’s challenge is still in the medium to long term
The two businesses mentioned above, from the current point of view, are more investment than return, in the short term may have been in a state of burning money, so where does the money come from? Obviously it has to rely on the domestic travel business as a cow segment.

In the six months from July 1, 2020 to December 31, 2020, the China travel business had total transactions of RMB 121.6 billion, up 80.3% from the six months from January 1, 2020 to June 30, 2020 and up 12.2% from the six months from July 1, 2019 to December 31, 2019.

In terms of earnings performance, the China travel business achieved adjusted EBITDA of RMB 3.84 billion in 2019, RMB 3.96 billion in 2020 and RMB 3.62 billion in the first quarter of 2021. In addition, the EBITDA margin for the China Netmobile business is 3.1% in 2020.

In terms of market share, Didi is also now absolutely dominant in the country. Econet data shows that in December 2020, Didi plus Flower Piggy accumulated nearly 96 million monthly activities, and the monthly activity of the second place, Didi Travel, was only 17.99 million, and the sum of all other players except Didi was less than one-third of Didi.

In other words, Didi’s market position in China is relatively stable, but it can’t be said that there is no threat at all, because Meituan, Baidu, and Gaode, which are platform aggregators, will also have some impact on Didi, but these impacts are already difficult to change the market pattern from the current point of view, and the domestic online car pattern has been set.

However, through the above two future focus points can be found, Didi is now essentially anxious and restless.

As Ma Huateng has said many times in interviews, entrepreneurs must walk on thin ice every day, and Didi’s management clearly sees two problems, one is the short-term market growth rate problem, and the other is the medium and long-term industry revolution.

In particular, the travel industry is destined to change. Driverless will definitely redefine travel, and Didi’s business model, which is built on a driver-based model today, will be completely overturned, and all OEMs are seeing this change today, and there are some that are going down to the real world.

A current Geely Automobile management said in an exchange with LuJiu Finance, travel definition car is an inevitable trend, so the host plant is worried about being Didi and other elimination, will try to make a line platform, but so far in addition to Cao Cao scale a little larger, other host plant travel companies have burned billions of dollars after the sale of the end, make a line platform is difficult.

The failure does not mean that the trend is not right, just that the timing is not right, the mainframe manufacturers are more mature in terms of the overall solution compared to Didi, they can put driverless vehicles on the market at a lower cost, of course, today is not possible, that is, Cao Cao this model was born at the wrong time, if in the driverless era, it may be successful.

Therefore, Didi itself is very clear about this, so the self-driving business was split and independent in financing.

As previously reported by Evening Point, Didi Autonomous Driving is about to complete a new round of financing with over $300 million, of which BAIC Group invested $200 million. Since the split in 2019, Didi Autonomous Driving has raised a total of over $1.1 billion.

The two companies are not not optimistic about this piece of business, but the short-term pressure is too great to support it.

The aforementioned Geely management told Land Nine Finance that fully autonomous driving will not come that quickly, and it is estimated that it will not be seen or even achieved for 10 to 20 years, and few companies have the courage to challenge projects with such long investment cycles.

However, thanks to the welfare of domestic policies, Didi currently has relatively little resistance to investment in the direction of autonomous driving, which we all know is the future, but who holds out until that day, the platform-based Didi? or the OEMs? At the moment, it’s hard to say, except that Didi has some innate advantages, such as a huge, huge commercialization scene.

However, no matter who it is, the final destination is the same, because the future has come, the story of travel is already clear.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/didis-medium-to-long-term-powerhouse/
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