Didi's IPO: Revenue growth hits a ceiling, autonomous driving story is far from enough to quench thirst

As the undisputed top player in China's online ride-hailing market, Didi recently finally officially announced the launch of the listing process after being rumored to be going public many times.

With the help of China's huge mobile Internet market, Didi has accumulated 493 million users, far ahead of industry pioneer Uber's 93 million users.

However, what is extremely ironic is that in the prospectus released by Didi, it did not use its already huge online car-hailing market share to win recognition from the capital market, but instead emphasized the inclusion of its autonomous driving business, which is still in the research and development stage, in its prospectus.

Baidu CEO Robin Li recently stated bluntly that autonomous driving will not be truly mature in the next 10 or even 20 years and will require continuous investment. Baidu invested more than 20 billion yuan last year and will continue to maintain an aggressive high investment intensity in the future to ensure technological leadership.

For companies that intend to go public, it is risky to include a business that has not yet been verified by the market in their prospectus. Why did Didi, which has always been known for its "stability", make such a decision at this time? Perhaps this is Didi's cleverness, using a distant and long-term concept to cover up the online car-hailing business that has actually reached its peak.

The existing profitable business is single and profitability is close to the ceiling

As the leading company in China's travel market, Didi accounts for 90% of the market share, which gives it an almost insurmountable advantage over its competitors. However, behind this advantage lies the crisis of Didi's single profit model.

From the information revealed in Didi's IPO documents, it can be seen that its global total revenue in 2020 was 141.7 billion yuan, with revenues from China's travel business, international business and other businesses being 133.6 billion yuan, 2.3 billion yuan and 5.8 billion yuan respectively, of which China's travel business accounted for 94% of the total revenue.

It is not difficult to see that China's travel business is the mainstay of Didi's business. In other words, if Didi China's travel business fluctuates, the future of the entire group will be seriously affected.

Of course, Didi is not unaware of this problem, so it has made many attempts to enter new fields in recent years, but ultimately without any good results.

In the financial field, Didi has been providing loan services for nearly six years, but the amount of loans it has provided is still less than 20 billion yuan, which is clearly at a disadvantage compared to high-profile products such as 360 IOU and Baidu Youqianhua.

In the field of community group buying, although the industry has regained its vitality due to the epidemic, the demise of Didi, Meituan and Pinduoduo also attracted the arrival of giants such as Alibaba. As a result, even though Chengxin Youxuan obtained US$1.1 billion in financing, it eventually fell into a loss-making situation in the community group buying industry, which has become a money-burning industry. In order to go public, Didi finally chose to divest the Chengxin Youxuan business.

In fact, Didi’s problem is not just a single profitable business, the more serious issue is that its existing business growth is approaching its ceiling.

According to official data released by Didi, its Chinese travel business, which accounts for the majority of its revenue, did not become profitable until 2019, with a profit of 3.844 billion yuan, and in 2020 this figure fell to 3.618 billion yuan. Compared with the basic plate of 133.6 billion yuan in the domestic travel business, the net profit margin can be said to be very low. Moreover, what is more worrying is that Didi has already obtained 90% of the domestic travel market share, and the room for future growth is already very limited.

As for Didi, which claims to have surpassed Uber in many countries, according to the information in its prospectus, 30% of the funds raised will be used for international business expansion. It can be inferred that it is still in the stage of subsidizing customers and still has a long way to go before it can achieve profitability. After all, there is more than just Uber in the foreign market, and Didi must also face the legal issues of online car-hailing in the countries where its business is located. This process is full of uncertainty.

For companies seeking to go public, a single revenue model and low net profit margin are clearly fatal problems. Even after a successful listing, the stock price will continue to fall due to this relationship, so many companies will try to solve these two problems in their existing businesses before going public. Perhaps out of helplessness or perhaps out of radicalism, Didi is determined to cover up the existing problems by introducing the concept of autonomous driving, thereby maintaining the imagination space for its stock price for a long time.

Will Didi’s autonomous driving story stand the test of time?

Unlike Didi’s other businesses, the autonomous driving business is not only Didi’s core business in the future, but also has the mission of raising its stock price in the short term.

Didi revealed in its prospectus that SoftBank, as an investor, will leave the board of directors after Didi goes public. Based on the subsequent results of previous resignations of appointed directors, this is a signal that SoftBank, which has been facing a revenue crisis in recent years, is ready to cash out from Didi.

As one of the companies with the most accurate investment vision, the departure of SoftBank will inevitably cause a major blow to Didi's market value. However, for Didi, which is valued at nearly US$100 billion, it is no longer a realistic option to find another investment institution with the same tonnage as SoftBank to support it. Now Didi can only rely on its own capabilities to get back what SoftBank took away when it left.

At this time, the autonomous driving business becomes the best choice to give Didi room for imagination and raise its stock price.

First of all, smart cars are currently a hot investment area, and the stock prices of any listed company that announces its entry into this field will see a huge increase.

Since Evergrande announced its plan to build cars, although no mass-produced cars have been launched, the relevant stock price has increased by 672%;

Baidu's market value soared to 450 billion yuan in February this year. The reason was that well-known investment banks including Jefferies and Mizuho expressed optimism about Baidu's non-core business (autonomous driving business) and raised their target share price.

Smart cars are a new species in the automotive industry. They are fresh enough in themselves and are also recognized as a new direction of development in the automotive industry. It is natural and reasonable for Didi to use it to raise its stock price.

On the other hand, after Didi's existing online ride-hailing business is combined with its autonomous driving business, there will be more room for imagination in Didi's future development, and this is the basis for Didi to continue to tell the story of its $100 billion market value.

When the autonomous driving business is commercialized, the problem of Didi China's travel business being affected by high driver labor costs will be completely solved.

Last year, Didi China's 13 million active drivers each earned an average of 9,030 yuan, accounting for all of China's total travel business revenue of 133.6 billion yuan. By replacing existing human-driven cars with self-driving cars, Didi can completely eliminate driver costs and increase the profit margin of the entire travel business to a terrifying level.

Secondly, autonomous driving will help Didi fill the last gap in the integrated travel ecosystem of "making cars - hailing taxis - driving cars", allowing Didi to use user travel behavior as a breakthrough point and take the opportunity to establish an industry layout of food, drink, entertainment and autonomous driving logistics and shopping around user travel, and deeply penetrate into users' IoT home life, thereby telling a more attractive story.

In general, the current problems of Didi, such as single revenue business and small profit margin, are unlikely to be improved in the short term. However, the autonomous driving business, which is in the investment hotspot, can significantly reduce operating costs and build an ecological blueprint, and can play a role in boosting the stock price in the long term. Therefore, it is not difficult to understand why Didi included the autonomous driving business, which it has recently entered, in its IPO prospectus.

After all, for Didi, this is the story that best fits their business model and is the most exciting story they can tell. However, if, as Robin Li said, autonomous driving has a 20-year gestation period, can Didi's story survive the test of time?

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.