On Thursday, Chinese ride-sharing giant Didi Chuxing filed to go public in what will likely be one of the largest tech initial public offerings of the year. The official name of the company as registered on the F-1 is Xiaoju Kuaizhi.
Founded in 2012, Didi has grown to have approximately 493 million annual active riders and 15 million annual active drivers. After a brutal price war, Didi acquired Uber’s (UBER, Financial) China business in 2016 in a transaction that gave both companies shares of each other, though while Uber has kept its 12.8% stake in Didi, Didi reportedly sold its Uber shares for cash in the last couple months of 2020.
The company has not yet chosen an exchange to trade under, but it plans to list in the U.S. under the “DIDI” ticker.
Aside from Uber, other big-name investors in the company include Softbank (TSE:9984) with 21.5% of the company’s pre-IPO value and Tencent (HKSE:00700, Financial) with 6.8%.
Valuation
Didi was most recently valued at $62 billion in a fundraising effort last August. According to sources familiar with the matter, Didi could fetch a valuation of $70 billion or more in its IPO.
This number seems likely to go higher given high investor demand for growth stocks and bullish optimism for ride-sharing stocks in general as Covid-19 cases decrease and people around the world begin to travel again. A Bloomberg report estimated the company could be valued as high as $100 billion by the time it goes public.
The company plans to raise approximately 8% to 10% of its valuation in the offering, which it will use to invest in its technology projects, introduce new products and grow outside of China.
Technology investments
Like Uber, Didi is also investing in several adjacent technology areas. However, while Uber sold its self-driving technology business to Aurora Innovation for $10 billion last December, Didi is still investing heavily in developing self-driving robotaxis.
A constant risk with tech projects is that they may not succeed and hit it big. Uber struggled with its self-driving project for years while making no significant progress before finally washing its hands of the business entirely.
Thus, it is still far from clear to investors and the general public whether Didi’s autonomous vehicle efforts will pay off or whether it will end up following in Uber’s footsteps and divesting the business. However, Didi recently gained approval to test its self-driving vehicles in Beijing, and the results of this testing should give an idea of how much progress they’ve made so far.
Recent earnings
Tech startups with high growth ambitions typically spend years losing money before making a turn to profitability, and Didi is no exception. In full-year 2020, the company reported revenue of $21.6 billion, down 8.4% year over year due to the pandemic, and a net loss of $1.63 billion. As a comparison, Uber’s 2020 revenue was $11.4 billion, with a net loss of $6.77 billion.
However, in the first quarter of 2021, the company managed to pull off a profit with net income of $837 million before certain payouts to shareholders and comprehensive net income of $95 million. The positive number was partially due to the $1.9 billion in gains related to spinoffs and divestments, but it still shows that Didi is close to achieving more consistent profitability.
The likelihood of a turn to profitability for Didi is even more likely when we consider that Uber, which posted a significantly higher net loss than Didi in 2020, is expecting to be profitable on an adjusted basis by the end of 2021.
