Didi Kuaidi’s valuation reaches US$15 billion. Is this a capital game or a reflection of value?

Just after Uber announced that it had raised $1 billion, Didi Kuaidi quickly responded. In a letter to shareholders, Chairman and CEO Cheng Wei revealed the latest news: a $1.5 billion financing case was oversubscribed, and the financing scale was planned to be further increased.

Sources said that Didi Kuaidi's new round of financing may exceed $2 billion. Its valuation will rise to $13 billion to $15 billion, double the amount at the beginning of this year. You should know that its predecessors, Didi and Kuaidi, were established only three years ago. As far as I can remember, among local Internet companies, only Xiaomi seems to have such a speed.

However, this should not be a big surprise. Three months ago, several friends familiar with Didi Kuaidi revealed a detail: before the merger, some people in the two companies looked down on their own stock options, and it was said that no one wanted them at more than 10 US dollars. As a result, as soon as the merger, the price quickly quadrupled and it was no longer available. This company may create a tragic and comic story similar to the internal stock of Alibaba before and after its listing in the future, haha.

At the current rate of development, the upper limit of the valuation of $15 billion will be greatly refreshed in the next few months. Uber, the only competitor, has a global scale of only 1/3 to 1/6 of that of Didi, and a market share of only 1/10 of that of Didi in China, but its valuation has reached $50 billion. Once Didi Kuaidi makes up for its shortcomings in internationalization, it is expected to create a new Xiaomi legend: in just over a year, its valuation has increased from more than $10 billion to $45-50 billion.

Is Didi Kuaidi a capital game or a true reflection of its huge market value? I certainly agree with the latter. The logic behind its success in gaining the favor of capital and significantly increasing its valuation lies in the following five aspects: huge trends and opportunities, clear vision, business model driven by application scenarios, business innovation and R&D capabilities, and growth potential.

1. Huge trend outlet: Hitting urban diseases and social pain points

Trends determine the growth space and height of an industry and its specific companies. Didi Kuaidi is in an era of rapid urbanization in China. Countless Chinese cities are expanding, and a new round of urbanization has been identified as a national strategy.

In this process, the transportation industry and even the logistics industry have become the focus of the entire society and the focus of reform. Combined with the degree of urbanization and urbanization, population distribution, and the trend of regional economic transformation over the years, it can be said that this trend will continue for decades or even longer, thus determining the existence of a huge industry opportunity.

This is the Chinese soil where Didi Kuaidi has its foothold, and it determines its growth space in the years ahead. Didi Kuaidi’s rapid growth over the past three years is by no means simply due to subsidies. The huge controversy it has caused reflects the pain points of the market.

Trends and opportunities are the key to its huge financing and sharp increase in valuation. As China's policies gradually loosen, the trend becomes clearer, and I believe this will be a favorable condition for its valuation to surpass Uber in the future.

2. A clear vision: a huge mobile transportation platform

There are many companies in this trend, but not all of them can clearly describe their vision. Some companies treat "stories" as visions, but they are just tactics, tools and processes. We have seen too many Internet companies treat stories as visions, telling a chapter, playing a game and then leaving.

Didi Kuaidi’s vision description has gone through a process. Initially, it was positioned as a taxi-hailing software, like a tool, not a vision. After the merger, it was defined as a “one-stop mobile travel platform”, which is obviously centered around the C-end description and reflects the growth characteristics of the first stage, but it is not complete. In this industry, cars, people, objects, and various offline services cannot be truly separated.

In the latest description, it is defined as a "mobile transportation platform". The three elements of mobility, transportation and platform are complete, corresponding to the characteristics of the times, specific fields, and corporate organizational evolution, and depict the vision relatively clearly and completely. The "transportation" here is not simply public travel, but a large logistics concept covering people, vehicles, goods and services. It is a huge O2O platform with a broader market.

Vision is different from story. It must be appealing and feasible. The ability to clearly describe the vision is the core competitiveness of the enterprise.

Trends determine the growth of the industry, and vision determines the growth height of a specific enterprise. The new definition reflects the strategic height of Didi Kuaidi's leadership, and its goal is to build a platform-level enterprise that solves the society's major logistics problems with various solutions in the mobile era. It marks that Didi Kuaidi has entered a new round of development and demonstrates its confidence in defining the future. In the eyes of investors, a clear vision often means that the company's operations have entered a mature stage, and future return expectations are more stable.

3. Business models and ecosystems driven by application scenarios

From the initial taxis to private cars, express cars, chauffeurs and ride-sharing, as well as the integrated logistics it is currently involved in, Didi Kuaidi's business is far richer than that of all its competitors, and its platform nature is more obvious.

These services cover various application scenarios of travel and transportation, and are not isolated modules. With the support of big data, they can be connected to each other and redefined and combined according to application scenarios. Future application scenarios will not be limited to travel and logistics. In addition to vertically connecting the vertical industrial chain, Didi Kuaidi will definitely integrate various industry services horizontally to become a giant O2O platform.

Many people don’t realize that Didi Kuaidi has a connection capability similar to BAT: it not only connects people with cars, but also connects people with people, people with things, people with services, and cars with services. Didi Kuaidi has the ability to leverage the entire social network, the Internet of Things, and O2O.

A few days ago, some people speculated that Didi Kuaidi's Hitch service has become the new "Momo", which reveals the social business opportunities. In the future, every car will be a personalized media platform, providing customized advertising media services and information services according to the needs of enterprises or the public, and reaching offline.

The business model driven by application scenarios reflects Didi Kuaidi's mature understanding of users, product development capabilities, and big data capabilities, as well as its openness, platformization, and intensive advantages. This is an ecological system. Once the operation matures, there will definitely be a snowball effect inside and outside, bringing together various services that are currently difficult to imagine, and significantly reducing operating costs.

The huge room for imagination determines that Didi Kuaidi’s valuation dimension is much richer than that of its rival Uber.

4. Business Innovation and R&D Capabilities

The business model driven by application scenarios determines that Didi Kuaidi is essentially a technology company first and foremost.

The taxi, private car, chauffeur, express car, ride-sharing and other services on the platform, especially ride-sharing, are almost the technological high ground in the current industry, involving complex data analysis, calculation, intelligent search, LBS, precise push, etc.

Some time ago, Cheng Wei announced the "Tidal Strategy", which is more of a technical exercise than a corporate strategy. The technology to smooth out the peaks and troughs of traffic flow is regarded as a Nobel Prize-level social problem.

In May, Didi Kuaidi established a machine learning research institute, which focuses on artificial intelligence technology research and development and big data mining. The institute will also invest heavily in research in the fields of artificial intelligence such as smart transportation, data mining, and image recognition.

For some time, Didi Kuaidi has been recruiting the world's top big data research experts, which shows the company's technological trends.

My judgment is that a considerable portion of the US$2 billion in financing will be invested in research and development.

5. High-speed growth

In three years, Didi Kuaidi has become the world's largest mobile transportation platform: since May, the number of daily private car orders has reached 3 million, a weekly increase of 30%, and the current market share is 80%; the number of taxi trips per day has reached 3 million, accounting for 99%; 1.5 million drivers have joined in more than 360 cities in China, accounting for 75%; the number of car usage is 10 times that of the second largest peer in China, at least 3 times that of the world, and the number of daily active users is 10 times that of the second largest peer in China. At the end of 2015, the annualized total revenue was US$12 billion.

In terms of scale, Didi Kuaidi’s only competitor is Uber, which is much smaller than it, but has a significantly higher valuation. Uber probably benefited from the labels of “American company” and “globalization”.

After this round of financing, both parties should enter the IPO competition. Take Didi Kuaidi for example, the valuation of US$2 billion, US$13 billion to US$15 billion, corresponding to a 13% to 15% equity ratio, should be regarded as the largest amount before IPO. Even if there is new funds in the future, it is impossible to release a larger proportion. Didi Kuaidi is expected to complete its amazing leap in the capital market.

It is expected that Didi Kuaidi will not burn money on subsidies as it did in the past three years. It should move towards intensive cultivation while expanding its scale. Facing Uber, which is following its old path, I think if Didi Kuaidi wants to surpass its rival in valuation and create a greater effect in IPO, it must urgently make up for three relative shortcomings:

1. It needs to expand into the international market as soon as possible. This is not only a means to strengthen its international operating image, demonstrate confidence, and weaken its competitors, but also a way to resolve the pressure of domestic policies that have not yet been fully opened. I believe this is a powerful tool for Didi Kuaidi to significantly increase its valuation.

To expand into the international market, you can of course set up a base independently, but a more feasible way is to graft international industrial resources, especially to establish strategic cooperation with international upstream and downstream related fields to form a vertical integration effect. Naturally, this process will be accompanied by the discovery of international talents and brand building.

2. Further strengthen the image of technological innovation. This is part of the advantage that Uber has left to the outside world. In addition to independent research and development, Didi Kuaidi also needs to quickly integrate with international industry forces, especially with international giants with core technologies such as big data mining and artificial intelligence, to establish strategic cooperation;

Once these two points are met, Didi Kuaidi’s valuation dimensions will be richer. It can be said that with the advantage of the huge Chinese market, it will be invincible.

3. Didi Kuaidi needs to describe its profit model to the outside world. This is still relatively simple at present. It should combine its own model to show stronger monetization ability.

In the short to medium term, it is almost impossible for competitors to surpass it in scale. However, Didi Kuaidi’s pressure and risk items are more due to unclear policies. While innovating and expanding its business, Didi Kuaidi urgently needs to establish better relationships with competent departments and local governments to eliminate operational risks in the local market. This is also a very delicate task.

It is unlikely that China's industry policies will be fully relaxed immediately, and substantial changes will take a long time. Didi Kuaidi needs to strike a balance between maintaining innovation and preventing a breakdown in relations, while also balancing investment.

In Cheng Wei's letter to shareholders, he expressed tolerance and understanding when talking about government regulation, and made some reflections on the sharing economy of his peers. Recently, Didi has become more cautious in its subsidy trend. It is worried that excessive subsidies, such as reaching 2 to 3 times the fare, will be detrimental to market development and lead to the prevalence of fraud. Uber China has recently had serious fraudulent orders, which has been disclosed many times. I understand this as a signal that Didi Kuaidi has begun to shift its focus to intensive cultivation and strengthening internal management and operations. It has cultivated a market with a large scale advantage and brand effect. The positive driving effect of simple subsidies is not as good as before. Didi Kuaidi needs to concentrate its superior resources and strengthen the above aspects.

In fact, I have also observed more details of Didi Kuaidi's response to the government's demands. For example, its stance on new energy vehicles is very interesting. Although Didi Kuaidi has caused huge social controversy in the past three years, in many aspects, it is not in opposition to the government's demands, but moving in the same direction. It can fully play the role of a promoter of China's taxi industry reform and produce huge spillover effects.

Didi Kuaidi's business layout is consistent with the latest signals sent by the government. On the 24th, Yang Chuantang, Minister of Transport, said that it is necessary to promote the implementation of the special action plans of "Internet Convenient Transportation" and "Internet Efficient Logistics", and encourage and support the market to carry out various travel and logistics information services based on the mobile Internet. He also emphasized that the transportation department should take the lead in achieving stable economic growth, the "three major national strategies", the "new four modernizations", adjusting the structure, and ensuring and improving services for the people's livelihood.

There will certainly be some policy changes in the future, especially as local governments are still unanimous. However, the reform trend of the transportation industry and the entire logistics sector cannot be reversed. Didi Kuaidi, the world's largest mobile transportation platform, has reached a new turning point. Compared with its competitors, Didi Kuaidi, which is facing too much suppression, will have a longer-term reform dividend once it faces a policy window. I believe that in the next year, it will usher in a huge window for realization, which will determine that it will not only surpass its competitors in scale, but will also trigger a greater effect in the capital market.

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.