Didi Fights to Prove It’s More Than Just China’s Uber

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China’s Didi Chuxing, after two horrendous years in its ride-hailing business, is losing the confidence of at least some investors that it can live up to its once-lofty ambitions.

Shares in Didi are trading privately at as much as a 40% discount to its peak valuation, according to people familiar with matter. They changed hands at about $33 to $35 per share in private trades late last year, compared with a record of $55 per share, the people said, requesting not to be named because the matter is private. A Didi representative declined to comment.

While the private transactions were small and Didi has scores of investors, the hefty discount marks concern over a company that had ranked among the world’s premier startups with a valuation of $56 billion, according to CB Insights. Investors have begun to question whether the ride-hailing model can ever turn a profit after disappointing public offerings from Uber Technologies Inc. and Lyft Inc. Didi, led by founder and Chief Executive Officer Cheng Wei, has endured even deeper troubles after the murder of two passengers and intense scrutiny from regulators.

“Many investors are questioning whether Didi can ever turn profitable,” said Shawn Yang, an analyst at Blue Lotus Capital Advisors. “Uber and Lyft’s share tanks underscore skepticism about the industry as a whole.”

It’s another challenge for SoftBank Group Corp. and founder Masayoshi Son, who took a hit last year with the implosion of WeWork. SoftBank is the biggest backer of ride-hailing companies, with stakes in Didi, Uber, Singapore’s Grab and India’s Ola.

The Japanese company invested a total of about $18 billion in the sector, making it the biggest bet in Son’s portfolio, according to Sanford C. Bernstein. SoftBank took a writedown on those holdings after the decline in Uber shares, Bloomberg News reported in November.

Still, Didi retains a dominant position in Chinese ride-hailing, with 93% of total daily active users in 2019, according to Bernstein. That gives it a powerful platform in an enormous market, despite the latest setbacks. In a vote of confidence, Toyota Motor Corp. put $600 million into Didi in July at the $56 billion valuation, according to a person familiar with the matter.

Didi is trying to prove it can get back on track. It’s reviving expansion plans after a regulatory crackdown in the wake of the 2018 murders. It has stepped up safety measures, retooled management and turned to partners to broaden its network, a quicker way to expand with lower capital spending.

“Didi is partnering with more third-party limousine companies,” said Julia Pan, a Shanghai-based analyst with UOB Kay Hian. ‘If it can maintain its commission above a certain rate, the demand is there and it should be able to make money eventually.”

China’s Ride-Hailing Decline Hurting Car Sales, Bernstein Says

It’s also trying to revive a lucrative car-pooling business and venturing into adjacent businesses, such as bike-sharing and food delivery. It’s expanding in Latin America, Australia and Japan, with an average of 4 million rides daily now outside of China.

The company has deep cash reserves: It raised about $21 billion from backers including SoftBank, Toyota, Apple Inc. and Booking Holdings Inc., according to data compiled by Crunchbase. That’s helped it hold off competitors like Dida, Cao Cao and Shouqi Limousine & Chauffeur.

Still, ride-hailing has gone from the most celebrated new business to one of the most scrutinized. Uber lost more than $1 billion in the third quarter alone, while Lyft reported $464 million in red ink the same period.

While Didi doesn’t disclose financials publicly, it lost $1.6 billion in 2018, according to 36Kr. Its rider and driver app usage slid by 5% and 23%, respectively, in the third quarter, according to Sanford C. Bernstein. Didi’s challenges have delayed its time-line for both profitability and an initial public offering.

This year, it faces one new uncertainty: a mysterious viral outbreak in China that has killed 17 and infected hundreds.

“The first half could be another challenging period for Didi amid a pneumonia outbreak,” said Pan. “Drivers could be reluctant to put in hours and passengers could cut back on trips and traveling.”

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, Edwin Chan

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