Tick three rush IPO, the long-dormant travel market is revived

At the end of February, Dida Chuxing once again submitted a prospectus to the Hong Kong Stock Exchange, hitting the IPO for the third time. Prior to this, Dida Chuxing submitted two IPO applications in October 2020 and April 2021. If the listing is successful, Dida Chuxing will become the first stock in the domestic travel field on a "last-come, first-come" basis.

Compared with Didi, the scale and volume of Dida travel are much smaller, but it is quite stable. Contrary to the stock market where everyone is competing for ride-hailing, Dida's main business is hitchhiking and taxi, cutting a hitchhiker business that has been constantly criticized and caused big trouble to Didi but is very profitable, and a taxi market that is constantly on the verge of self-help.

According to the prospectus, Dida is a company that has been profitable for four years.

In 2020, 2021 and the first nine months of 2022, Dida Chuxing's operating revenue was RMB754.2 million, RMB780.6 million and RMB428.3 million, respectively. Adjusted net income was $343.3 million, $238.0 million and $65.4 million, respectively.

As can be seen from the data, since its first profit in 2019, although Dida Chuxing has maintained this trend, its revenue and profit have become less and less. In the past three years, due to the pandemic, the frequency of passenger travel has decreased significantly, and the entire mobility industry has entered a difficult period. Although it is now ushering in a recovery opportunity, for Dida, there are also former opponents who have returned with the previous market.

On January 16, Didi announced through its official Weibo that it would resume new user registration, and then restarted activities to subsidize old drivers and recruit new drivers. At the same time, the "latecomer" Hello Hitchhiker has already reached a considerable scale last year (150 million orders last year, up from 72.1 million in the first 9 months of last year). For Dida, a fierce competition is already in sight, and the time window for listing really cannot be missed again.

High margin, high risk, small market

When Didi suspended its hitchhiker business and the app was troubled by the supervision and takedown, Dida seized this uncontracted fish pond.

In the business logic of Hitchhiker, the platform does not bear the cost of owning a car, and there is no need to provide large subsidies to car owners and passengers. While Didi continued to use new businesses such as takeaway, freight transportation, and car manufacturing to make the company heavier, Dida took the lead in achieving profitability with an asset-light model.

According to the prospectus, the gross profit margin of Dida Hitchhiker's business has continued to be above 80% year after year: in the first nine months of 2020, 2021 and 2022, the gross profit margin was 86.7%, 85.4% and 80.5%, respectively. Counting other businesses, the gross profit margin of the platform as a whole also remained at about 80%.

That's a very high level. In contrast, Didi's gross profit margin in 2018-2020 and 2021Q1 was only 5.50%, 9.77%, 11.23% and 10.83%. From 2018 to 2020, Didi's net loss exceeded 35 billion yuan.

Although it is high, it is too small. According to the Tianfeng Securities report, in the domestic four-wheel travel market, which includes taxi hailing, taxi ride-hailing, ride-hailing and hitchhiking, hitchhiking accounts for only 1% of the share. So Dida explains what it means to "earn less than others", and its annual revenue is only about one percent of Didi's.

But the secondary market has long been tired of quenching its thirst, and is more concerned than ever about real profits rather than a pie of nothingness. When unprofitability becomes the industry standard, this in itself is something worth thinking about.

The returning Didi and the rising star Haro are bound to care more about this fertile land.

What Dida shows in the prospectus is the market structure in 2021: according to Frost & Sullivan's report, in terms of total transaction volume and number of rides, the market share of Dida Hitchhiker in 2021 is about 38.1%, making it the largest hitchhiker platform in China. Based on the description of several other companies in the notes below the figure, it can be guessed that Company A is Haro (31.5%) and Company B is Didi (21.7%).

Screenshot of the prospectus

How is 2022? According to data released by Hello Hitchhiker, 150 million ridesharing orders were completed on the platform in 2022. The number of rides in the first nine months of last year announced in the prospectus was 72.1 million. Even if the first place and the second place are not translocated, I am afraid that the gap is not large.

Needless to say, the risks of hitchhiking. As mentioned in the prospectus, the Company faces uncertainties related to the regulations of the hitchhiker market, and non-compliance with regulations and changes in the licensing regime may have a material adverse effect on its business and operating results. Its hitchhiker platform received a total of 57 administrative fines, of which 36 were subsequently withdrawn as at the date of this document. The remaining 21 administrative fines ranged from $5,000 to $30,000, totalling about $550,000.

Taxi, away combat

It's no secret that the secondary market is less welcoming to companies with a single revenue structure.

Since 2018, the revenue contributed by the hitchhiker business has increased as a percentage of Dida's total revenue year by year. In the first nine months of 2022, this figure reached 91.1%.

Although nominally a hitchhiker and a lessor, in the first nine months of 2022, smart taxi service revenue accounted for only 3.6% of Dida's total revenue, and the revenue was only 16 million yuan.

The prospectus shows the competitive landscape of China's taxi market presented by the Frost & Sullivan report: in terms of taxi rides, Dida ranked second in the domestic online travel market in 2021, with a market share of 0.22%. In comparison, the number one company has a market share of 3.15%. As can be guessed from the description of the company in the notes, Didi ranks first and Meituan Taxi ranks third.

Screenshot of the prospectus

For Dida, it is difficult to gain an advantage by fighting the reborn Didi in the taxi market it is familiar with. Although with Didi's current financial level, it is difficult to start a fierce subsidy war, but sticking to the current share is enough to hold the top position. Perhaps even more threatening for Dida is Meituan, which has greater financial strength and ambition.

For Dida, which still remains "small and beautiful", now may be the last excellent listing window - the enemy is still resting, and he has maintained a small profit, and the necessity of financing the stock is self-evident. In addition, will profitability become one of the important goals that the entire industry needs to adjust in 2021? Quite possibly. This may mean that the long-dormant travel market will once again usher in a competitive storm.