How China's Economic Slowdown Is Impacting Travel Consumption Trends: Take Dida For Example

The carpooling services provider's revenue began to decline in the second half of last year, as it cited changing ‘travel consumption trends'

Key Takeaways:

• Dida's revenue fell 8.6% in the second half of last year, reversing a 2% gain in the first half, as it felt the effects of China's slowing economy and heightened competition
• The ride-sharing company's declining fortunes contrasted with the much larger DiDi Global, whose revenue grew 7.5% last year, including 7% growth in the fourth quarter

China's economic slowdown is shaping up as a double-edge sword for budget ride sharing operator Dida Inc. (2559.HK).

On the plus-side, the company is logging strong demand for the cheap carpooling services that are its main revenue source. Dida is also having no difficulty signing up new drivers for its service, many of them probably recently unemployed workers who have lost their jobs as China's economy slows after three decades of rapid growth.

On the negative side, the growing demand for its services isn't translating to more revenue for the company, most likely because Dida is having to offer its services for lower prices in the face of stiff competition and increasingly bargain-focused consumers.

The net result is that Dida's revenue began to fall in the second half of last year, according to its latest financial report released at the end of last week. That slide contrasts with industry leader DiDi Global, whose own report, also released last week, shows the company managed to notch 7.5% revenue growth last year despite the sluggish economy.

None of this is too surprising, even though it doesn't bode too well for Dida. The company should theoretically be outperforming its rivals in the current environment, since it's famous for its low-cost services due to its focus on carpooling. But DiDi is well aware of that too, and has been stepping on the accelerator for its own revamped Hitch carpooling service that it relaunched in 2019 after an earlier scandal in which two passengers were killed.

At the same time, a new generation of platforms that aggregate ride-sharing services from many different companies is throwing a new dynamic into the industry. Those platforms are allowing many smaller companies to quickly enter the industry, turning up the heat on older, larger players like Dida. The aggregating platforms also take fees from shared car service providers like Dida, eroding the money they earn for each ride.

The net result of all that is erosion of both top line revenue and bottom line profits for companies like Dida, which are sandwiched between the larger DiDi Global and the many new upstarts entering the market using the aggregator platforms operated by the likes of Amap, the mapping unit of Alibaba (BABA.US; 9988.HK), and a similar mapping app operated by internet search giant Baidu (BIDU.US; 9998.HK).

"In 2024, as a result of the slowing economic growth, travel consumption trends have become more price-sensitive, while there is an overall surplus of transportation capacity," Dida said in the report, summarizing the state of the broader ride-sharing sector.

The company's shares fell nearly 10% on Monday, the first trading day after the announcement, and continued to sag through the week, down 12.6% by Wednesday's close. At the closing price that day of HK$1.21, the stock has lost about 80% of its value since its IPO in June last year. Even worse, the company's shares are down by about half since last October, even as most Hong Kong-listed Chinese stocks have rallied sharply.

Revenue shifts into reverse

Dida's revenue is going nowhere fast, after peaking in 2023 at 815 million yuan ($112 million). The figure declined 3.4% last year to 787 million yuan. Some calculations using previously published data show the company's revenue began to contract in the second half of the year, falling by 8.6% in the six months to December after growing 2% in the first half of 2024.

The revenue decline contrasted sharply with rises for many of Dida's other user metrics. The company said the number of passengers who placed orders over its platforms rose 34.3% last year from 2023, driven by strong demand from smaller cities. The company's Dida Mobility app also logged 10.5% growth in registered users to more than 372 million by the end of last year.

But the decline in revenue, in the face of such gains, suggests that its revenue per ride came under heavy pressure for the reasons we've outlined above. That's reflected in the company's gross margin, which dropped to 72.0% last year from 74.3% in 2023, with Dida blaming both its greater use of third-party ride aggregators as well as technology upgrades.

To its credit, the company managed to stay profitable in the increasingly difficult environment. Its adjusted net profit, which excludes stock-based compensation and fair value changes in financial instruments, was roughly unchanged for the year at 211 million yuan, compared with 226 million yuan in 2023. But some dissection of the full-year figure shows the company's adjusted profit fell 42% in the second half of 2024, reversing a 51% gain in the first half.

By comparison, DiDi Global reported its revenue grew 7.5% last year to 206.8 billion yuan – more than 200 times Dida's figure, showing the huge gap in size between these two companies. And unlike Dida, the larger DiDi's revenue growth held fairly steady throughout the year, rising 7% in the fourth quarter to 52.9 billion yuan from 49.4 billion yuan a year earlier.

DiDi Global was briefly publicly listed in New York, but later withdrew that listing after failing to get a necessary data security review in China before its IPO. It has yet to comment on any future relisting plans, but its continued release of quarterly results suggests it's planning such a move, which would most likely come closer to home in Hong Kong or possibly on one of China's domestic A-share markets in Shanghai and Shenzhen.

Meantime, the much smaller Dida currently trades at a price-to-sales (P/S) ratio of 1.52, which is still above 1 and thus isn't horrible, but still reflects the many question marks hanging over the company. Sector leader Uber (UBER.US) trades at a higher ratio of 3.7, and Southeast Asia's Grab (GRAB.US) is even higher at 6.6. Beleaguered U.S. peer Lyft (LYFT.US) trades at a lowly 0.86, below the psychologically 1 threshold, and it's quite possible Dida could follow into that murky terrain if its business continues to deteriorate.