A Didi Kuaidi IPO Or Lyft IPO Could Precede An Uber IPO

  • China’s largest ride-hailing service, Didi Kuaidi, recently completed a massive $3B funding round.
  • Didi Kuaidi dominates the Chinese market completely and now targets the U.S. through Lyft.
  • The company also penetrates Southeast Asia through GrabTaxi to boost its global leadership position.
  • A 2016 Didi Kuaidi/Lyft IPO before Uber is likely.
Didi Kuaidi IPO Or Lyft IPO Could Precede A Uber IPO

In recent years, many local Chinese companies have received Western nicknames that reveal a lot about the nature of their business. It started with Baidu (NASDAQ:BIDU), “the Google of China”; then it was Alibaba (NYSE:BABA), the “eBay of China”; and AliPay, the “PayPal of China”; now, Didi Kuaidi is the “Uber of China”. Even though these nicknames don’t fully respect the companies, they explain in short who the Western equivalents are for the Chinese giants – and in Didi Kuaidi’s case, it’s pretty accurate.

Didi Kuaidi, China’s biggest ride-hailing service, is a merger between two local rivals, Didi Dache and Kuaidi Dache. The two local rides, as service providers, were backed by internet giants Tencent and Alibaba, and they merged together to create one of the world’s largest ride-hailing services to challenge Uber’s dominance. At the time of the merge in February 2015, the two companies controlled 80% of the Chinese market, but now they face increasing competition from Uber in China, which is trying to challenge Didi Kuaidi’s dominance in its home country.

A few days after Didi Kuaidi completed the biggest private placement in history, raising $3B from Tencent, Alibaba, Coatue Management and others at the beginning of September, Uber China raised $1.2B from China’s internet giant Baidu. As shown in Chart 1 below, Didi Kuaidi has raised a total amount of $4.4B with the recent funding round, $1.2B short of Uber in the same period, which raised $5.5B between 2012 to 2015 (year-to-date) and $8.2B in total.

Uber_chart 5_091615_v1

As described in an earlier article, Baidu’s investment in Uber China is aimed at accelerating Uber’s penetration into the mainland by partnering with the local super-brand and using its wide network and local expertise to fight back against Didi Kuaidi. With Alibaba and Tencent investing billions of dollars in the local ride-hailing market, it was only a matter of time before the third Chinese internet giants leapt in as well.

Didi Kuaidi and Uber China were recently caught in a price war across China’s main cities and almost allowed passengers to ride for free just to keep up the competition with one another. Uber’s penetration into China is one of the company’s strategic moves to expand globally into the largest emerging markets of China and India, which still have premature ride-hailing markets. While Uber raised enormous amounts of cash to expand globally, Didi Kuaidi carefully started its global expansion by investing in the Asian ride-as-a-service company GrabTaxi, which operates in six Southeast Asian countries, and in the American company Lyft, which is Uber’s biggest competitor in the U.S.

More recently, we also a saw Softbank investing in GrabTaxi. In the same $350 million funding round, GrabTaxi also received funding from China Investment Corporation, Tiger Global and Coatue Management. With China Investment Corporation also having invested in Didi Kuaidi, there were even rumors of a potential merger. This space is quite hot now, with Google (NASDAQ:GOOG) which is an investor in Uber, also stepping up the competition by launching RideWith in Israel.

With Tencent’s and Alibaba’s support, Didi Kuaidi is one of the largest investors in Lyft, and this could intensify the competition Uber faces in its home country. In addition, the American market is big and strong enough to contain two huge rivals: Uber and Didi Kuaidi-backed Lyft. Potentially, increased competition back home could also impact Uber’s plans to penetrate China; however, with Baidu’s support, this is unlikely to happen.

Didi Kuaidi’s GrabTaxi investment is also a logical move. The company operates in six Southeast Asian countries, Malaysia, the Philippines, Thailand, Singapore, Vietnam, and Indonesia, which are highly impacted by the Chinese economy, and a Chinese giant could penetrate relatively ease into these markets, as was the case with Baidu, Tencent’s WeChat, Alibaba’s AliPay, and so on. Expanding into Southeast Asia through a strong local player could help Didi Kuaidi increase its geographic spread successfully and fiercely compete with Uber worldwide.

Currently, the biggest problem Uber has worldwide is Didi Kuaidi, which is optimally positioned to maintain its leadership position in China, Southeast Asia (though GrabTaxi), and in the U.S. (through Lyft). As Uber China is rumored to go public in the local stock exchange, Uber is rumored to go public in the US in 2017, it is very likely that either a Didi Kuaidi IPO or Lyft IPO could precede them (US IPO for Didi Kuaidi is a valid option). There are many investors that want to invest in the ride-hailing industry but couldn't participate in the funding round, and they could use the Didi/Lyft IPO to penetrate this market well ahead of Uber’s IPO. If Uber IPOs first, investors might not be as interested in Didi/Lyft as they might be in case they go public before Uber.

Lior Ronen Lior Ronen   on Amigobulls :
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