Didi Chuxing IPO Valuation

Dear Reader,

DiDi Chuxing, or simply DiDi, the Chinese based ride-hailing mobility platform, has filed an IPO porspectus.

I estimate DiDi  is worth around 120 billion USD. 

DiDii made 21.633 billion USD in revenues in 2020, according to the table below from its IPO prospectus:

The following table presents our summary consolidated statements of comprehensive income (loss) for the periods indicated.

			For the Years Ended December 31,												For the Three Months Ended March 31,
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
			2018			2019			2020						2020			2021
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
			RMB			RMB			RMB			US$			RMB			RMB			US$
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
			(amounts in millions, except for share and per share data)
Summary Consolidated Statements of Comprehensive Income (Loss)
Revenues
China Mobility			133,207			147,940			133,645			20,398			18,945			39,235			5,988
International			411			1,975			2,333			356			767			804			123
Other Initiatives			1,670			4,871			5,758			879			760			2,124			324
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total revenues			135,288			154,786			141,736			21,633			20,472			42,163			6,435
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Costs and expenses
Cost of revenues			(127,842	)		(139,665	)		(125,824	)		(19,205	)		(17,354	)		(37,597	)		(5,738	)
Operations and support			(3,665	)		(4,078	)		(4,696	)		(717	)		(897	)		(2,149	)		(328	)
Sales and marketing			(7,604	)		(7,495	)		(11,136	)		(1,700	)		(1,769	)		(5,107	)		(779	)
Research and development			(4,378	)		(5,347	)		(6,317	)		(964	)		(1,478	)		(1,862	)		(284	)
General and administrative			(4,242	)		(6,214	)		(7,551	)		(1,152	)		(2,296	)		(2,102	)		(322	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total costs and expenses			(147,731	)		(162,799	)		(155,524	)		(23,738	)		(23,794	)		(48,817	)		(7,451	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Loss from operations			(12,443	)		(8,013	)		(13,788	)		(2,105	)		(3,322	)		(6,654	)		(1,016	)
Interest income			1,458			1,361			1,229			188			337			187			29
Interest expenses			(44	)		(70	)		(136	)		(21	)		(19	)		(61	)		(9	)
Investment income (loss), net			(817	)		(476	)		2,833			432			(462	)		12,361			1,887
Impairment loss for equity investments accounted for using cost method/Measurement Alternative			(2,541	)		(1,451	)		(1,022	)		(156	)		—			—			—
Loss from equity method investments, net			(768	)		(979	)		(1,058	)		(161	)		(195	)		(45	)		(7	)
Other income (loss), net			(337	)		(453	)		1,031			158			(490	)		(384	)		(59	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income (loss) before income taxes			(15,492	)		(10,081	)		(10,911	)		(1,665	)		(4,151	)		5,404			825
Income tax benefits			513			348			303			46			179			79			12
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income (loss)			(14,979	)		(9,733	)		(10,608	)		(1,619	)		(3,972	)		5,483			837
Less: Net loss attributable to non-controlling interest shareholders			(1	)		(5	)		(94	)		(14	)		(10	)		(2	)		(0	)
Net income (loss) attributable to Xiaoju Kuaizhi Inc.			(14,978	)		(9,728	)		(10,514	)		(1,605	)		(3,962	)		5,485			837
Accretion of convertible redeemable non-controlling interests to redemption value			—			—			(165	)		(25	)		(20	)		(90	)		(14	)
Deemed dividends to preferred shareholders upon repurchases of convertible preferred shares			(664	)		—			(1	)		—			—			—			—
Income allocation to participating preferred shares			—			—			—			—			—			(5,199	)		(793	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income (loss) attributable to ordinary shareholders of Xiaoju Kuaizhi Inc.			(15,642	)		(9,728	)		(10,680	)		(1,630	)		(3,982	)		196			30
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

DiDi's revenue for the first three months of 2021 grew briskly year on year, which shows the company is recovering from the coronavirus pandemic shock.

Uber and Lyft, the US based ride-hailing giants are trading at Price/Sales ratios on 2020 figures of 9 and 8 respectively which means that if DiDi goes public at 120 billion USD market capitalization, Didi would actually be relatively undervalued compared to Uber and Lyft.

Stopping a regular, non-taxi driver and paying him to take you somewhere or ride-hailing is actually at the moment a price dumping business with much lower prices than regular taxi licensed carriers. Apparently, the goal of Uber, Lyft and DiDi is to conquer the market, annihilate the competition by making them loose money and later when they have oligopoly power on the market they will raise prices like Ryanair, EasyJet and Airbnb have done.

And DiDi made 30 million USD of profit in the first quarter of 2021, even. All this is very well thought out. However, it depends on the both private and public investors providing money for the growth of currently a loss making business on an yearly basis like DiDi. As long as central banks keep supporting the economy by creating monetary reserves, or simply said printing money, to buy up mainly government and mortgage bonds, but also corporate bonds, the market will continue supporting money loosing businesses like Tesla, for example.

All in all, DiDi's intrinsic value is 120 billion USD at the moment. Ride-hailing is here to stay as it saves people money by deregulating the transporting industry. Regulation destroys investment and provides for inefficiencies. DiDi, however, must become profitable to substantiate a valuation above 50 billion USD in the long run.

Will DiDi become profitable. Yes, I believe DiDi could achieve a net profit margin of around 5% to 10% in the long run.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich