Despite flat growth, ride-hailing colossus Didi’s US IPO could reach $70B

Didi filed to go public in the United States last night, providing a look into the Chinese ride-hailing company’s business. This morning, we’re extending our earlier reporting on the company to dive into its numerical performance, economic health and possible valuation.

Recall that Didi has raised tens of billions worth of private capital from venture capitalists, private equity firms, corporations and other sources. The size of the bet riding on Didi is simply massive.

Didi is approaching the American public markets at a fortuitous moment. While the late-2020 IPO fervor, which sent offerings from DoorDash and others skyrocketing after their debuts, has cooled, valuations for public companies remain high compared to historical norms. And Uber and Lyft, two American ride-hailing companies, have been posting numbers that point to at least a modest recovery in the ride-hailing industry as COVID-19 abates in many parts of the world.

As further grounding, recall that Didi has raised tens of billions worth of private capital from venture capitalists, private equity firms, corporations and other sources. The size of the bet riding on Didi is simply massive. As we explore the company’s finances, then, we’re more than vetting a single company’s performance; we’re examining what sort of returns an ocean of capital may be able to derive from its exit.

In that vein, we’ll consider GMV results, revenue growth, historical profitability, present-day profitability and what Didi may be worth on the American markets, given current comps. Sound good? Into the breach!

Inside Didi’s IPO filing

Starting at the highest level, how quickly has gross transaction volume (GTV) scaled at the company?

GTV

Didi is historically a business that operates in China but has operations today in more than a dozen countries. The impact and recovery of China’s bout with COVID-19 is therefore not the whole picture of the company’s GTV results.

COVID-19 began to affect the company starting in the first quarter of 2020. From the Didi F-1 filing:

Core Platform GTV fell by 32.8% in the first quarter of 2020 as compared to the first quarter of 2019, and then by 16.0% in the second quarter of 2020 as compared to the second quarter of 2019.

The dips were short-lived, however, with Didi quickly returning to growth in the second half of the year:

Our businesses resumed growth in the second half of 2020, which moderated the impact on a year-on-year basis. Our Core Platform GTV for the full year 2020 decreased by 4.8% as compared to the full year 2019. Both our China Mobility and International segments were impacted, but whereas the GTV for our China Mobility segment decreased by 6.6% from 2019 to 2020, the GTV for our International segment increased by 11.4% from 2019 to 2020.

Holding to just the Chinese market, we can see how rapidly Didi managed to pick itself up over the last year. Chinese GTV at Didi grew from 25.7 billion RMB to 54.6 billion RMB from the first quarter of 2020 to the first quarter of 2021; naturally, we’re comparing a more pandemic-impacted quarter at the company to a less-affected period, but the comparison is still useful for showing how the company recovered from early-2020 lows.

The number of transactions that Didi recorded in China during the first quarter of this year was also up more than 2x year over year.

On a whole-company basis, Didi’s “core platform GTV,” or the “sum of GTV for our China Mobility and International segments,” posted numbers that are less impressive in growth terms:

Image Credits: Didi F-1 filing

You can see how quickly and painfully COVID-19 blunted Didi’s global operations. But seeing the company settle back to late-2019 GTV numbers in 2021 is not super bullish.

Takeaway: While Didi managed an impressive GTV recovery in China, its aggregate numbers are flatter, and recent quarterly trends are not incredibly attractive.

Revenue growth

Our next question is how Didi’s GTV recovery has converted into revenue. Here’s the core dataset:

Image Credits: Didi F-1 filing

Yes, that’s a lot of numbers. Don’t worry, we’ll get through the key figures together.

First, we can see that from 2018 to 2019, Didi’s revenues grew from 135.3 billion RMB to 154.8 billion RMB, a gain of around 14%. From 2019 to 2020, however, the company shrank. Given what we learned about the company’s GTV figures and the challenges of COVID-19, the result is not a huge surprise.

Focusing on more recent results — looking at the three columns on the right — shows that the company’s revenue more than doubled from Q1 2020 to Q1 2021, resulting in $6.4 billion in total top line, $7.5 billion in total costs and an operating loss of $1 billion. That final figure was offset by $1.9 billion worth of investment income, helping the company record GAAP net income of $837 million before we take into account some complex accounting regarding preferred shares.

Don’t get too excited. Didi usually loses money, which we’ll get to shortly.

From the data, it’s difficult to say where Didi is going next. The company’s recent recovery has been impressive, but how much growth is ahead? The company’s revenues in Q1 2021 were smaller than its Q3 and Q4 2020 numbers, for example. So, while Didi has strong year-over-year numbers to flex, its growth story is not utterly limpid.

Historical and present-day profitability

Looking at the company’s historical quarterly results, we can see that it has never generated positive operating income:

Image Credits: Didi F-1 filing

Indeed, the company’s operating losses have grown in recent quarters.

Things get a bit better once we take into account investment incomes. Those allow the company to report two periods of nonadjusted profitability. You can see those numbers at the bottom of the September 30, 2020, and March 31, 2021 quarters.

In cash terms, Didi’s operation has some historical good news. It generated positive operating cash flow in both 2019 and 2020, impressive in the latter case given the pandemic. But in the first quarter of this year, its cash flow from operations swung sharply negative to the tune of 6.1 billion RMB, or around $937 million. That’s around $10 million in operating cash burn per day for the roughly 90-day period.

Takeaway: Didi is not as unprofitable as we might have anticipated. That’s a nice surprise. But the company’s regular business has never made money, and it’s losing more lately than historically, which is also pretty rough.

What’s it worth?

A lot.

Uber is worth 4.8x its first-quarter gross bookings, for example, which are generally comparable to Didi’s GTV results. Didi’s “core” GTV was 62.3 billion RMB, or $9.74 billion in the first quarter. On a 4.8x multiple, that works out to a valuation for Didi of $46.8 billion.

You might argue that Didi is stronger in certain areas than Uber, and is thus worth more than the U.S. company’s gross spend multiple. That’s a completely valid perspective. But Uber’s multiples will provide something of a gravitational tug to Didi’s own valuation; Uber is the context that its erstwhile Chinese rival will have to combat to garner a greater multiple.

That could be a worry for the company, which was valued at $62 billion in 2020. Naturally, it will want to best that valuation mark in its public debut. Perhaps the IPO climate will allow for aggressive pricing at the Chinese unicorn. We’ll know soon enough.