Didi Chuxing is the big dog of China’s ride-sharing business, and an increasing factor internationally. They have been doing business in Mexico for two years. Should you invest in Didi Chuxing stock?
Didi is backed by big caches of venture capital. That includes Uber (NYSE:UBER) itself, which took a 20% stake (since watered down) in selling its China operations to Didi in 2016.
Now some of those investors want out. Well, at least one wants out. That’s Softbank (OTCMKTS:SFTBY), which plunged $10 billion into Didi over four years and is now raising cash for its second Vision Fund.
The IPO, if it happens, would be in Hong Kong, which can take both Chinese and foreign capital. The valuation is rumored to be $80 billion.
Didi claims to have 90% of the Chinese ride-hailing market and 550 million users. It has begun testing a robotic taxi service in Shanghai. The service will be available in limited areas. Cabs currently have a “safety” driver riding in them.
Didi has a lot in common with Uber in that it loses a lot of money. It was also hit hard by the novel coronavirus, which took out about half its business after the government quarantined Wuhan. The government has hampered it in other ways, requiring separate licenses and not handing many out.
Getting numbers out of the private company is difficult, although shares do trade. Crunchbase lists 21 fundraisers with 32 investors. On its S-1 last year, Uber listed the value of its 15.4% stake in Didi at $7.95 billion.
Like many Chinese companies, Didi raises money by partial spin-offs of new operations. This gives investors some visibility into its business. In May, when Softbank put $500 million into Didi’s robo-taxi service, Didi President Jean Liu said the ride-hailing business was profitable. She didn’t give out any figures.
The robo-taxi story also told readers why Softbank wants out, and why Didi may need to IPO. The Japanese company’s Arab backers are spooked by the failure of its first Vision Fund and haven’t ponied-up for Vision Fund 2.
The story on the rumored IPO, from Caixin Global, gave an $80 billion figure for Didi’s valuation and said it had $7.2 billion in cash. The story cited sources, and it’s likely at least one was Softbank. Caixin has since cast doubt on the $80 billion figure, estimating the value of the company closer to $56 billion.
More Than Uber
Over the last few years Didi has become more than an Uber clone. In addition to the robo-taxi service, it has rolled out a home delivery app, a logistics service, and a service called Huaxiaozhu with rides as low as 79 cents and its own app. The company also offers bicycle sharing, designated driver services, and a ride-sharing service called Qingcai, which means “vegetables.”
The Bottom Line
All these efforts, and the fact that China is opening while America is closing, help make Didi look interesting, if the price is right.
While most Chinese start-ups are sponsored by a larger company like Tencent Holdings (OTCMKTS:TCEHY), Didi is an exception. That’s because it has investments from both Tencent and Alibaba Group Holdings (NASDAQ:BABA).
By partially spinning off things like the robo-taxis, Didi could create its own galactic center. That’s why, despite the company’s denials, I suspect an IPO is coming. That will happen either when Didi can dictate its own terms, or if it can’t get Softbank off its corporate back.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA.