The company is facing continuous net losses and increasing market competition
"China Science and Technology Investment", Zhang Ting, Wu Haiyin
On the evening of April 29, Cao Cao Travel Co., Ltd. (hereinafter referred to as "Cao Cao Travel") submitted a listing application to the Hong Kong Stock Exchange. However, according to the latest prospectus, in the past three years of operation, Cao Cao's debt pressure has continued to increase, and both short-term and long-term debt have shown a trend of increasing year by year. It is worth noting that the bank loans that the company needs to repay this year are as high as hundreds of millions of yuan. In addition, its net current liabilities are also increasing, and although its operating cash flow will turn positive in 2023, the limited amount is far from sufficient to support its debt service needs. On the other hand, the significant increase in the cost of sales, complaints, especially the significant increase in driver income and subsidies, may become a heavy burden on the company's finances.
In addition to the heavy financial pressure, as of March 2024, Cao Cao's complaint rate remains high, and drivers and passengers have doubts about the cost and need to be reconciled.
Financial pressure is high
Cao Cao Travel was incubated from the automobile group Geely Group. According to the prospectus, calculated according to GTV (the total payment amount of all orders completed through the platform within a certain period of time), Cao Cao Travel has been ranked among the top three online car-hailing platforms in mainland China from 2021 to 2023. However, according to the prospectus, Cao Cao faced financial difficulties during the three-year track record period, which was manifested in debt burdens, negative cash flow and accumulated losses.
According to the prospectus, Cao Cao has borrowed a lot of money to fund its business, and this situation will continue in the future. First of all, Cao Cao's short-term and long-term debt increased year by year from 2021 to 2023, with short-term debt of 2.4 billion yuan, 3.5 billion yuan and 5.2 billion yuan, respectively, while the long-term part of long-term debt was 1.4 billion yuan, 2.1 billion yuan and 2.4 billion yuan, respectively. It is worth mentioning that Cao Cao has two bank loans that need to be repaid this year, and the company plans to use part of the funds raised in this listing to repay these debts. Specifically, Cao Cao obtained short-term loans from three banks, two of which had a principal amount of 200 million yuan and 300 million yuan respectively, with a term of one year and need to be repaid in November and December 2024 respectively. In addition, a bank loan of $200 million will mature in April 2025.
At the same time, Cao Cao's net current debt has also continued to increase, from 3 billion yuan in 2021 to 5.2 billion yuan in 2023, and the company needs more cash inflows to repay its short-term debt. However, from 2021 to 2022, Cao Cao Travel experienced negative operating cash flow of 1.5 billion yuan and 1.1 billion yuan respectively. Although the company turned around in 2023 and achieved positive operating cash flow, it only reached 136 million yuan, which is still a drop in the bucket to meet operating expenses and repay short-term debt.
At the same time, Cao Cao's spending is large, especially in terms of cost of sales. From 2021 to 2023, its cost of sales will reach 8.899 billion yuan, 7.97 billion yuan and 10.053 billion yuan respectively. This cost mainly includes driver income and subsidies, depreciation expenses and service costs. According to the prospectus, the increase in this cost is mainly due to the increase in driver income and subsidies, which increased from 6.3 billion yuan in 2022 to 8.1 billion yuan in 2023, an increase of 29.6%.
In addition, since its establishment, Cao Cao has incurred a net loss in each financial year. From 2021 to 2023, there were operating losses of $2.8 billion, $1.866 billion and $1.575 billion, and net losses of $3.0 billion, $2.13 billion and $1.94 billion, respectively. Although the overall loss amount has decreased, the road to profitability is still far away, and Cao Cao admitted in the prospectus that it may continue to face losses in the future. To add insult to injury, since receiving 1.8 billion yuan in Series B financing in August 2021, Cao Cao has not carried out other financing activities, and it hopes to raise funds through this listing. However, the road to listing in the online car-hailing industry is not smooth, with Dida Travel repeatedly hitting the Hong Kong Stock Exchange unsuccessfully, and then Ruqi Travel's two failed to submit prospectuses.
*Cao Cao Travel summarizes the comprehensive loss statement, screenshot from the prospectus
There are many complaints from drivers and passengers
In the huge ride-hailing market, compliance is one of the important factors for users to choose a platform. However, as one of the top three online car-hailing platforms in China, Cao Cao's travel compliance rate is low. As of March 31, 2024, the online ride-hailing regulatory information interaction system had received a total of 891 million orders, an increase of 15% month-on-month, according to the statistics of the online car-hailing regulatory information interaction system. Among the top 10 platforms in terms of order volume, the top 10 platforms in terms of order compliance rate (i.e., the proportion of orders in which both drivers and vehicles are licensed) from high to low are Ruqi Travel, Xiangdao Travel, Wanshun Taxi, Xiehua Travel, Timely Car, T3 Travel, Sunshine Travel, Cao Cao Travel, Didi Travel, and Huaxiao Pig Travel.
According to the prospectus, Cao Cao's non-compliance behavior is due to the inability of the platform to meet the various rules formulated in different places; On the other hand, it is due to the fact that a large number of vehicles and drivers cannot meet the requirements.
As far as the former is concerned, Cao Cao has difficulty meeting the regulations of different places. Standards such as vehicle registration, driver residency, and experience vary from city to city, resulting in a shortage of compliant drivers and vehicles. For example, first-tier cities require drivers to have a local household registration and a local license plate for their vehicles, while the proportion of local people with household registration working as drivers is low, and the license plate control is strict. At the same time, the platform needs to manage a large number of drivers and vehicles across cities, and the implementation rules and the changing regulatory environment in different cities have brought various management challenges. In addition, some localities have restricted or suspended the issuance of new permits, further complying with the problem. Shanghai, Sanya, Changsha, Guiyang and other cities have successively issued online car-hailing saturation warnings and suspended the issuance of online car-hailing vehicle transportation certificates. On April 16 this year, Jinan issued an announcement to suspend the issuance business, becoming the first city to suspend the online car-hailing business in 2024.
As far as the latter is concerned, Cao Cao Travel has a certain percentage of vehicles and drivers who do not hold valid documents every year. According to the "Interim Measures for the Administration of Online Taxi Booking Business Services", online car-hailing platforms can only operate after obtaining a platform license and filing, otherwise they will be fined 1-30,000 yuan. The vehicle must hold the "Online Taxi Transportation License", and the driver must hold the "Online Taxi Driver License", otherwise the platform will be fined 5,000 yuan to 10,000 yuan each time, and 1-30,000 yuan will be fined for serious violations. If the platform provides poor services or seriously violates the law, it may be suspended for rectification or have its certificate revoked.
In addition to the compliance problems of incomplete driver and vehicle documents on the platform, the number of complaints against "Cao Cao Travel" on the Black Cat complaint platform reached 6,880, far exceeding the 1,491 complaints of "Ruqi Travel" and the 2,677 complaints of "Xiangdao Travel". These complaints mainly involve arbitrary deductions, unjustified deductions, duplicate deductions and other issues, and both drivers and passengers have expressed dissatisfaction with them. On the one hand, the driver reported that Cao Cao's travel platform had problems such as arbitrary deduction of money, unfair judgment and fines, and pointed out that there were overlord clauses in the platform contract, which made it difficult for the actual income to cover the operating costs; On the other hand, passengers complained that the driver overcharged for detours and unclear billing, and also mentioned that the driver's service attitude was poor and the APP manual customer service was difficult to contact. It is worth noting that although some of the complaints have been replied to or handled by the platform, the customer said in the supplementary complaint that the problem has not been effectively resolved. Cao Cao often simply replied to the complaints received, without further processing or follow-up.
According to the official website of Credit China, Hangzhou Youxing Technology Co., Ltd., the main operating company of Cao Cao Travel, currently has 179 pieces of administrative punishment information. The most recent penalty decision was made on May 6 this year, and the penalty was imposed on the driver who provided the service for failing to obtain the "Online Taxi Reservation Driver's License", and was fined and confiscated illegal income. Although the prospectus shows that in 2021-2023, the fines imposed for non-compliance, which do not exceed 0.1% of the corresponding annual revenue, did not have a material adverse effect on the overall financial position. However, frequent violations and penalties can damage a company's public image and brand reputation, which in turn can affect the public's trust in the company.
*Hangzhou Youxing Technology Co., Ltd. administrative punishment information on May 6, screenshot from the official website of Credit China
In response to Cao Cao's listing in Hong Kong, the reporter sent a letter to Cao Cao, but as of press time, no reply has been received.