Is $80 Billion Valuation Achievable For Didi Chuxing’s IPO?

Didi Chuxing is China’s leading ride hailing and ride sharing company, commonly considered the “Uber of China.” In 2016, Didi Chuxing acquired Uber’s China business in a $35 billion deal, establishing its dominance in the region. In its most recent funding round, the company was valued at $56 billion, and it is reportedly looking to IPO in early 2019, at a targeted $80 billion valuation – lower than Uber’s target of a $120 billion valuation for its planned 2019 IPO. Our interactive dashboard on Estimating The Valuation Of Didi Chuxing  examines the company’s key valuation drivers and analyzes whether the company’s targeted $80 billion valuation is reasonable.

Between 2016 and 2017, Didi Chuxing grew its total user base rapidly, though this growth subsequently slowed down. In August 2018, Didi Chuxing’s reputation was impacted when a passenger was killed in one of its rides by a driver, raising safety concerns. Competition for Didi Chuxing is also increasing in China, with two key players – Auto Navi (owned by Alibaba) and local player Meituan Dianping – entering the ride hailing market in the region. Both players are offering deep discounts in order to gain market share, and their local expertise could potentially impact Didi Chuxing’s market share in the country. As the company faces some backlash around safety concerns, and competition gets stiffer, we do not expect significant growth in the total number of rides completed by the company for 2019.

Based on limited data available for the total number of rides and total revenues, we estimate the average gross revenue per ride for the company to be around $3.50 in 2018. We forecast this number to increase to $4 in 2019, as the company looks to withdraw rider discounts, focuses on luxury cars and sees increasing demand for longer rides. In the first half of 2018, the company reported a loss of $590 million, higher than its losses in 2017, mainly due to subsidies to riders and drivers. As the company looks to go public in 2019, we expect the subsidies to be reduced in 2019, leading to a boost in revenues and margins. Didi charges 20% from drivers as its share of revenue, and we expect this number to remain largely steady in the short term.

Based on its most recent valuation and expected revenues for 2018, Didi Chuxing commands a revenue multiple of around 7.5x. This is higher than Uber’s revenue multiple of about 5x based on its most recent valuation of $76 billion in August 2018. With growth rates slowing down, we do not expect Didi Chuxing’s revenue multiple to increase in the short term. If the company is able to achieve net revenues of around $9.5 billion in 2019, its valuation could potentially reach $72 billion – still falling short of its targeted $80 billion valuation. That said, further upside is likely if the company is able to grow revenues via expansion into other areas such as food delivery and a focus on mobility through an automated fleet. This could lead to further growth in the future, which would justify a higher revenue multiple. You can modify any of our key drivers and forecasts to arrive at your valuation for the company using our interactive dashboard here.

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