Yahoo Finance DAN LOEB: Ride-sharing will 'permanently change the global economic landscape'
Third Point LLC, the hedge fund led by Daniel Loeb, believes that Chinese ride-sharing platform, DiDi, could grow into “one of China’s largest internet companies.”
Third Point completed a private investment DiDi during the second quarter, the fund said in a letter to investors. Third Point didn’t disclose the size of the investment.
Third Point thinks that ride sharing will be a disruptive technological force “on par with retail ecommerce in economic scope and scale.”
“We believe that as ecommerce has done over the past decade, ride‐sharing and related autonomous driving technologies will create new industries, disrupt others, and permanently change the global economic landscape over the next decade,” the letter said.
There’s still incredible room for growth in China, too.
“Despite the rapid growth of Didi and its rivals over the last three years, ride‐sharing penetration in China is still quite low: less than 5% of China’s urban population currently uses ride‐sharing services and ride‐sharing represents less than ~1% of all urban transportation in China,” the letter said.
China is a “particularly attractive market” for ride‐sharing because it has some of the highest population density levels and it’s home to nine of the world’s 30 largest cities, the letter noted.
It continued: “Ride‐sharing platforms tend to work best in densely populated cities because they provide a liquid supply of available drivers, consistent rider demand to attract drivers, and correspondingly short waiting times. China also has a relatively low level of car ownership, with only 130 vehicles per thousand people (vs 800 in the US and 500‐700 in Western Europe). Given chronic traffic in China’s cities and the lack of available real estate for parking, a mainstream culture of private car ownership in China has not yet developed and most urban residents still rely heavily on public transportation.”
Third Point expects the ride-sharing market in China to explode in the next four years. DiDi is also seen as having an advantage since it’s already positioned itself as the dominant company.
“We forecast that the Chinese ride‐sharing market will expand from its 2015 volume level of less than two billion annual trips to ~25 billion annual trips by 2019, representing a market size of ~$100B, or ~9% of the Chinese urban transportation market. Given the ‘winner‐take‐most’ characteristics of ride‐sharing (which result from supply‐side economies of scale and network effects) and Didi’s already‐dominant position in the Chinese market (~80% market share today), we believe Didi can capture the vast majority of this substantial market opportunity. As a result, we expect Didi to grow into one of China’s largest internet companies, resulting in significant equity appreciation over the next five years,” the letter said.
Didi, which is China’s rival to Uber, received a $1 billion from Apple (AAPL).
Third Point Offshore Fund gained 4.6% in the second quarter, bringing its year-to-date returns to 2.2%. Meanwhile, the S&P 500 gained 2.5% in the second quarter, and is up 3.8% for the first half of the year.
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Julia La Roche is a finance reporter at Yahoo Finance.
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