China's Didi targeted by regulators within days of bumper US IPO

The company said on July 2, two days after it began trading, that new user registration had been suspended in response to a review by China's Cyberspace Administration Office. It was later clarified that Didi had violated rules on personal data collection. This led to app stores being instructed to prevent new downloads of the Didi Chuxing app in China.

The development comes amid a wider clampdown on China's internet giants in recent months that has seen Alibaba Group, Tencent Holdings, and ByteDance targeted.

Didi raised $4.4 billion in its IPO, the most by a PE-backed Chinese company in the US since Alibaba's $25 billion offering in 2014, AVCJ Research's records show. It is the second-largest IPO this year by an Asian business after South Korea e-commerce player Coupang’s $4.55 billion offering.

The company sold 316.8 million American Depository Shares (ADS) for $14 apiece, according to a filing. It originally planned to offer 288 million ADS at $13-14 per share. The stock closed at $15.60 on June 30 and climbed to $16.40 the following day. However, it ended July 2 at $15.53. Didi's market capitalization is still more than $74 billion; its peak private market valuation was over $60 billion.

SoftBank is the largest investor in both Didi and Coupang. With 20.1%, its first Vision Fund is now sitting on an unrealized position in the ride-hailing player worth $3.39 billion. Its first significant investment was in a $7.3 billion round in 2016 that valued Didi at $25 billion. A year later, SoftBank contributed $5 billion out of a $5.5 billion round at a valuation of $50 billion.

Conceived on the streets of Beijing – out of the founders’ frustration at trying to find transportation in inclement weather – Didi now claims to be the world’s largest mobility technology platform. As of March, it operated in 4,000 cities, counties and towns in 15 countries, with a fleet of 15 million drivers serving 493 million annual active users. The platform facilitated 41 million average daily transactions in the 12 months ended March with gross transaction value of RMB341 billion ($53.4 billion).

Within China, the shared mobility business encompasses ride-hailing, taxi-hailing, chauffeur services, and carpooling. It had 377 million annual active users and 13 million annual active drivers as of March and facilitated an average of 25 million transactions per day in the first three months of the year. Over the same three-month period, 4.6 million average daily transactions were completed outside of China.

Didi has three other core business areas: auto solutions, which involves providing car leasing services and discounted fuel and repairs to drivers; the largest electric vehicle (EV) charging network in China, which supports one million new energy and hybrid vehicles in the Didi network; and an autonomous driving unit that sources traffic data from the shared mobility fleet and uses it to develop algorithms for technology deployed in a 100-strong autonomous vehicle fleet.

Other operations – such as e-bikes, community group buying, and intra-city freight – are intended to leverage the company’s existing knowledge and network in on-demand services. SoftBank is also an investor in the e-bike, community group buying, and autonomous driving businesses via its second Vision Fund.

The global mobility market was worth $6.7 trillion in 2020, but shared mobility and EV penetration were 2% and 1%, respectively. China Insights Consultancy estimates they will account for 23.6% and 29.3% of a $16.4 trillion global market by 2040. China will contribute $3.9 trillion, with shared mobility and EV penetration of 35.9% and 50.2%, respectively.

Didi posted RMB141.7 billion in revenue last year, down from RMB154.8 billion in 2019, largely due to COVID-19 sapping demand. Over the same period, its net loss widened from RMB9.7 billion to RMB10.6 billion. China mobility is responsible for over 90% of revenue. Adjusted EBITDA for this business has been positive since 2019.

In the first three months of 2021, Didi’s revenue came to RMB42.2 billion and the company posted a net income of RMB5.5 billion. Didi still lost money on operations; the positive swing was because of gains on investments, including an unrealized gain of RMB9.1 billion on the community group buying operation.

Uber is Didi’s second-largest investor with 11.9%. Didi acquired Uber’s China business in 2016 – in between the two SoftBank investments – ending a costly battle for market share. The deal, which valued the combined Didi-Uber China operation at $35 billion, saw the parent companies receive equity stakes in one another. Tencent Holdings is the only other investor to cross the 5% threshold.

Didi’s other backers include Alibaba Group, Apple, China Merchants Bank, China Life Insurance, Mubadala Investment, Silver Lake, and Temasek Holdings. Company management – chiefly founders Will Cheng and Jean Liu – owns 10.5% and holds a majority voting interest.

Alibaba and Tencent are both investors because they previously backed Kuaidi Dache and Didi Dache, respectively. These two start-ups dominated China’s ride-hailing market in the early days before merging in 2015 (though in effect Didi acquired Kuaidi) at a valuation of $6 billion. Both Kuaidi and Didi received multiple rounds of funding prior to their unification.

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• Topics
• Greater China
• IPO
• Technology
• China
• Didi Chuxing
• Softbank
• Tencent
• TMT
• Transportation
• Alibaba Group
• Silver Lake
• Mubadala