Breakingviews - Didi falls way behind Uber on road to IPO

Founder and CEO of Didi Kuaidi, Cheng Wei speaks during a session at the World Economic Forum (WEF) in China's port city Dalian, September 10, 2015. REUTERS/Jason Lee/File Photo

HONG KONG (Reuters Breakingviews) - Didi Chuxing is falling way behind Uber on the road to an initial public offering. Both ride-hailing outfits burn heaps of cash and want to make market debuts soon, but new figures suggest they are traveling in different directions.

A fresh letter from Didi boss Cheng Wei to staff says the company lost more than 4 billion yuan, or $582 million, in the first half of this year. Competition against Meituan Dianping, the Chinese food-to-taxis app on the verge of its own flotation, has been bruising. Didi, valued at $56 billion in December, paid out over 11.7 billion yuan in subsidies to drivers and passengers in the first six months of this year. After stripping out those costs, the company averages a razor-thin margin – before factoring in many additional costs – of 1.6 percent.

San Francisco-based Uber, which swapped its Chinese business for nearly a one-fifth stake in Didi two years ago, looks healthier by comparison. It generated $5.4 billion in revenue on back of $23 billion of bookings in the first half. That means after the company pays out driver costs, passenger promotions, taxes and other fees, Uber keeps about 23 percent of each transaction.

The numbers aren’t like-for-like, but imply Didi’s path to profitability will be longer. It was stockpiled with some $12 billion in cash as of last year, thanks to backing from the likes of Apple and Japan’s SoftBank. Ventures into other costly businesses, including food delivery and bicycle-sharing, as well as international expansion efforts in Brazil and Mexico, will eat into those coffers quickly, though. Didi also faces a government crackdown and public backlash after a passenger was murdered by her driver last month.

Uber, which raised $500 million from Toyota last month at a $72 billion valuation, also faces stiff competition at home from smaller rival Lyft. Even so, it appears to be cleaning up its act under Chief Executive Dara Khosrowshahi following a corporate culture crisis, and is selling out of costly markets. Financial losses are narrowing. Though neither company is ready just yet to ride onto public markets, the discrepancies are becoming clearer and could make a difference as they both race for an IPO.


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