Later today, Wednesday, 30 June 2021, Chinese ride-hailing giant Didi Global Inc. will make its debut on the New York Stock Exchange (NYSE) under the ticker DIDI in what is expected to be one of the biggest Initial Public Offerings (IPO) of the decade.
The company’s decision to go public on the NYSE comes as the company is looking to expand to other businesses and markets outside China.
Yesterday, Tuesday, June 29 2021, Didi raised $4.4 billion in its U.S IPO, an amount that exceeded what the company had initially hoped to raise. Didi sold 317 million American Depository Shares (ADS) compared to the planned 288 million, and each share was sold at $14.
This money raised means that Didi has a market valuation of about $73 billion on a fully diluted basis, just as the Wall Street Journal had predicted, and $67.5 billion on a non-diluted basis. This makes Didi’s IPO the second-biggest of 2021 so far, only behind Coupang Inc., a South Korean e-commerce company that went public in March.
At $73 billion market capitalisation, Didi is now the second biggest ride-hailing company globally, only behind Uber, which has a market capitalisation of $95.67 billion. Didi’s market cap is now more than three times the third biggest ride-hailing company, Lyft.
Here are five things you need to know about this company
Didi and Uber have a complicated relationship.
Didi is in direct competition with Uber because apart from rides, it also offers food delivery, intra-city freight, and community group buying. In its filing to the Securities and Exchange Commission (SEC), Didi revealed that it has hundreds of millions of riders in China alone, but it also operates in 16 countries and over 4,000 cities around the globe.
Although Didi’s figures are impressive, Uber has further reach since, according to its 2020 annual report, the company revealed that it operates in about 10,000 cities scattered around 71 countries across the globe, as of Dec. 31, 2020.
These three companies (Uber, Didi, and Lyft) have been unprofitable due to the COVID-19 pandemic stay-at-home government directives, but in Q1 FY2021, Didi reported that its finances had turned positive with a net income of $837 million on revenue of $6.44 billion. These profits, which are primarily attributed to Didi’s investments, were impressive since the company had made a loss of $615 million on sales of $3.17 billion the previous year.
In 2016, Uber sold its Chinese business to Didi for $7 billion after the two companies had lost millions of dollars in an effort to gain control over the Chinese market.
However, Uber still has a 12.8% stake in Didi, which is estimated to be worth $1.94 after Didi’s IPO. This makes Uber the second-largest shareholder in Didi, only behind SoftBank Group, which holds 21.5% of Didi stock. Unlike Uber that has decided to keep its stake in Didi, Didi decided to sell its stake in Uber last year for a gain of $427,417.
Insiders have control
Just as it is the trend with recent IPOs, Didi has Class A and Class B shares with different voting rights. Each Class A share has one vote, and each Class B share has 10 votes.
Didi’s Chief Executive Officer (CEO) and Founder Will Wei Cheng, President and Co-founder Jean Qing Liu, and Stephen Jingshi Zhu, who heads international business group, all sit on the board and own all issued and outstanding Class B ordinary shares. This means that these three top leaders of Didi own 9.8% of the company’s total issued shares and 52% of the voting power, which gives them control over the company after the IPO.
Cheng, who has been the manager of Chinese e-commerce giant Alibaba and Alipay, is the Chairman of the Board at Didi and will have 6.5% equity in the company after the IPO, equivalent to 35.5% of the voting power.
Liu, who joined two years after the company was found and is now the company’s president, will have 1.6% equity after the IPO. Chinese tech company Tencent Holdings Ltd also has a 6.4% stake in Didi.
Didi has had some unfortunate events in the past. In 2018, two female passengers were killed by drivers on the company’s Hitch platform. Cheng and Liu talked about these events as the company’s darkest days, saying, “These shook us to our core.”
To make sure this never happens again, the company implemented some safety measures to protect both the passengers and drivers. Management said it now does more background checks on drivers before they are onboarded, and the company’s software was redesigned with safety in mind.
Other measures put in place include the establishment of its own “SWAT team” that promptly responds to safety incidents. In addition to that, the company installed video cameras in its vehicles in cities where it is allowed so that activities can be monitored and footage retrieved in case of anything.
These changes have worked out well for the company so far, as it reported “a massive drop in the number of criminal incidents per million rides on our platform.”
Apart from safety being a significant risk factor to this ride-hailing company, the Chinese government’s antitrust crackdown on tech companies, including Didi, is also a risk factor. In its filing to SEC, the company said that it completed self-inspection and improved in other areas, but there is no guarantee that the Chinese government will be satisfied with its efforts to keep its business practices under the law.
The other risk factor is how the government is concerned about the company’s drivers’ well-being and human resource treatment. Regulators are looking out for issues such as; driver income, pricing, and fairness to both the riders and drivers.
Didi says that it treats its drivers as independent contractors and not employees and that the company would be significantly affected if drivers are classified as employees, workers or quasi-employees by regulators.
We cannot talk about risk factors for companies in the transport industry and not mention COVID-19. The pandemic affected Didi’s business in 2020, causing losses of millions of dollars, and although it is recovering from those 2020 dark times, the company says that increasing coronavirus cases in certain parts of the world are still affecting its business.
In its filing, Didi said that as of December 31, 2020, it has the world’s largest network of electric vehicles (EVs) on its platform, with over 1 million of them including hybrids. This means that 40% of all the miles travelled by EVs in China are on Didi’s platform, according to the company’s findings. Didi also designed its own EV called the D1.
Didi’s Q1 FY2021 report highlighted that it had built China’s largest charging network for EVs with more than 30% market share of total public charging volume.