DiDi Drives Back Into Growth Lane, As Aggregators Encroach On Its Turf

Key Takeaways:

• DiDi Global’s first-quarter revenue grew 14.9% to 49.1 billion yuan, marking a fifth straight quarter of double-digit growth
• The ride hailing app has moved past earlier regulatory headwinds, but has lost market share to competition and smaller rivals using aggregating platforms

By Hugh Chen

Nearly two years after driving headlong into a regulatory wall, China’s leading ride-hailing app DiDi Global Inc. finally began to regain some of its former momentum early last year as its woes receded. Those woes dated back to the company’s June 2021 New York IPO, when it was accused of misusing user data and listing its shares despite objections from Chinese regulators.

The company, often called the “Uber of China,” passed a milestone in January last year when its apps reappeared in Chinese app stores, following a crippling nearly two-year suspension that was part of a punishment meted out by regulators. It has continued to publish earnings reports even after de-listing its shares in June 2022. The latest of those, published in late May, signals that DiDi is regaining some of its momentum, as it recorded double-digit revenue growth, building on similar strong growth over the previous four quarters.

Still, the company is unlikely to ever return to its former position as China’s dominant ride-sharing service due to changes in the market, most notably from slowing growth and the rise of aggregating platforms that make it easier for new rivals to set up and quickly gain traction.

DiDi reported first-quarter revenue of 49.1 billion yuan ($6.78 billion), up 14.9% year-on-year. That followed increases of 19%, 53%, 25%, and 55% over the previous four quarters, respectively.

Equally important, the formerly money-bleeding company has finally found a road to profits, at least on an adjusted basis. In the latest quarter, it reported adjusted net income of 1.4 billion yuan, even though it lost money on a GAAP basis due to investment losses related to its 3.25% stake in electric vehicle maker Xpeng. That news will certainly ease concerns of potential new investors as DiDi prepares to relist – most likely in Hong Kong.

China’s ride-hailing market has long since moved past its high-growth period of the early 2010s when DiDi was growing rapidly through a series of mergers, culminating in its acquisition of Uber’sUBER China business in 2016.

At the same time, competition isn’t showing any signs of abating in a Chinese market where at least 300 players offer services in direct competition with DiDi’s. Three notable rivals – the similarly named Dida Inc., as well as Chengqi Technology Ltd., and Caocao Inc. – have all recently filed for IPOs in Hong Kong, in a race to win the valuation premium that often comes with being first to market. Here, we should note that this race to market isn’t exactly new, since Dida first filed for a Hong Kong IPO as early as 2020.

Rise Of Aggregating Platforms

Before it hit its regulatory wall, DiDi was a near-monopoly in China with more than 90% of the ride-sharing market. It won that place by gobbling up its rivals, and also offering subsidies that were widespread in the sector’s earlier days, similar to what companies like Uber and Lyft LYFT were doing in other markets to quickly establish themselves as major players.

DiDi’s 18-month absence from China app stores provided a golden opportunity for its rivals to encroach on its dominance. While it remains the clear market leader, DiDi’s share dropped to around 70% by the end of last year, according to local media outlet Qujieshangye, citing data from the China Urban Public Transport Association.

DiDi’s slipping share also owes partly to shifting user behavior, as consumers increasingly turn to other major aggregator-style mobile apps to access ride-hailing services from smaller operators.

Two such apps are Amap, a popular mapping app owned by Alibaba BABA, and Baidu Map, owned by the country’s leading internet search engine. A third contender is food delivery giant Meituan (3690.HK), which specializes in online-to-offline (O2O) services. Meituan initially set up a rival service with its own drivers, but later retreated and now offers an aggregating service similar to the approach taken by Amap and Baidu.

In April, ride-hailing orders on such aggregating platforms totaled 232 million, representing 26% of total orders, up 18% from the 196 million orders in April 2023, according to data from China’s Ministry of Transportation.

The growing use of such aggregating platforms for ride-hailing services is attractive to the hundreds of smaller players that lack big budgets to develop their own high-quality apps and market their services, and instead rely on such platforms to reach consumers.

This trend has helped to create some strong second-tier players like Caocao that are filing for public listings. Such companies could potentially grow by acting as industry consolidators, since regulators are unlikely to approve any future acquisitions by DiDi on anti-trust grounds. They are clearly hoping that investors will buy into their strategy of eating into DiDi’s market share by leveraging these aggregate platforms.

DiDi has also shifted its strategy by allowing other ride-hailing companies to integrate their services into its own platform. But such an approach has its limits for obvious reasons, since these smaller companies may be wary of working so closely with such a major rival. In China’s capital city of Beijing, DiDi’s platform offers just four other choices from alternative ride-hailing providers, while Amap offers more than 60 options for the same route, according to checks by Bamboo Work.

Still, the latest quarterly results show that DiDi may be gradually recouping some of the market share it lost, despite the fierce competition. We should also point out that the recent double-digit growth is partly driven by DiDi’s overseas expansion, which will increasingly become one of the company’s major focuses. DiDi was already expanding overseas before the crackdown, and currently operates services in about a dozen countries, including Mexico, Japan, Brazil and Egypt.

While it faces challenges from aggregator platforms, DiDi is unlikely to face another major close competitor at home in the near future. To present a compelling story to investors, it will need to show it can maintain its leading position in China while also making significant progress in international markets where it often competes directly with Uber and other local taxi companies. Such markets contributed just 5% of its revenue in the first quarter of this year.

Potential investors will also be keeping a close eye on DiDi’s ability to become consistently profitability – something that’s increasingly difficult due to relentless competition and regulatory scrutiny. The government recently intervened to the detriment of platform operators, asking them to lower their commission rates as part of an effort to protect workers’ rights by boosting their income.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.