In the increasingly competitive online car-hailing market, can Cao Cao, which focuses on the best service, really support it to run an IPO?
After more than ten years of peaks and turns, the online car-hailing industry will finally usher in the moment of centralized listing in a real sense in 2024: after Didi is back on track, online car-hailing platforms such as Ruqi and Ticka will also hit the IPO.
Cao Cao, the third largest ride-hailing platform in China, is no exception – nine years after starting its business, it has made its first submission on the Hong Kong Stock Exchange with the label of the "10th IPO" of car madman Li Chuanfu and the country's largest self-built online car-hailing fleet, trying to compete with a group of peers for the "first share of online car-hailing".
Opening its financial data table, in the past three years, although its losses have shrunk year by year and its revenue has continued to grow, it is still difficult to hide the fact that it has lost 7 billion yuan in three years. In 2023, Cao Cao has just achieved a positive gross profit margin, and Cao Cao Travel submitted a prospectus on April 29, 2024.
Among the well-deserved No. 1 in the online car-hailing industry - Didi, and among the online car-hailing companies that are focusing on the IPO, Cao Cao is known as the one with the "best service reputation". And in the increasingly competitive online car-hailing market, can Cao Cao, which focuses on the best service, really support it to run an IPO?
01 Cao Cao traveled and was also "far ahead"
The incubation of travel platforms by car companies was a "prominent science" in the automotive industry 6 or 7 years ago. Cao Cao was incubated by Geely Group in 2015, as the first online car-hailing platform launched by a car company in China, and focused on new energy shared travel at the beginning of its launch.
At that time, Geely could be called "far ahead" in doing so: from the perspective of its peers, when Cao Cao Mobility was launched in 2015, none of the six major state-owned car companies had yet to establish their own mobility companies; There will be 2 years before AutoNavi Map will launch a taxi service; Four years later, the T3 was launched.
Liu Jinliang, the founder of Cao Cao Mobility, once predicted that when cars shift from ownership to use, shared travel will become a trend, and the future of the automobile industry will be electrified, intelligent and shared. In other words, in order to survive and transform, it is inevitable for traditional automakers to make a market.
The later story is familiar to everyone, and a number of car companies have also launched their own travel platforms: SAIC has Xiangdao Travel, BAIC has Huaxia Travel, GAC has Ruqi Travel, and FAW Dongfeng Changan has jointly launched T3 Travel......
From the perspective of the external environment, at that time, it was still in the stage where the online car-hailing industry was still fiercely competitive, and Didi Kuaidi was having a good time with Uber, and it was only a year later that the merger was ushered in. At that time, the online car-hailing market was far from the end of today.
Backed by Geely's car-making forces and the first-mover advantage, Cao Cao's imagination is still very large. At the beginning of its establishment, it took out three cards to differentiate: the use of pure electric vehicles, customized cars for the travel market, and mature car service solutions.
Different from the common C2C platform model (Didi) of online car-hailing, Cao Cao focuses on the model of "public bus + certified driver", providing drivers with special cars, openly recruiting drivers and training, and paying wages according to basic salary + commission, trying to provide users with better services with stronger management. In addition, drivers can also use Geely's network of battery swap stations and car repair shops to save costs and increase net income.
It is worth noting that Cao Cao repeatedly mentioned a rare concept in the industry in the prospectus - TCO, which refers to the cost of vehicle ownership and use.
With the help of Geely's car + battery replacement + maintenance and other complete systems, drivers can effectively reduce expenses, the financial report disclosed that the two main models - Ye 80V and Cao Cao 60, TCO can be as low as 30-40% compared with peers.
The cost of drivers is low, and the platform does not need to give drivers more subsidies, and it can also attract drivers to join "painlessly". This model has also become a model for car companies to copy homework when they enter the online car-hailing industry, and it has to be imitated to a greater or lesser extent. This also allowed Cao Cao to receive multiple rounds of investment - 3 years after its launch, it received a total of 1 billion yuan in Series A financing from 4 companies including Paradise Silicon Valley and Zheshang Venture Capital, and in 2021, it successively received a total of 3.8 billion yuan in Series B financing from 5 companies including Soochow Innovation Capital and Suzhou High-speed Rail New Town.
Source: Qichacha
Some investors have publicly stated that they are optimistic about the travel track, and they are also concerned about the good background of Cao Cao's shareholders and the good interaction foundation with Geely's ecology. Although to a certain extent, the vehicles developed by Geely for Cao Cao Travel are somewhat of a means of clearing inventory for its own new energy surplus capacity.
02 Cao Cao is not the only online car-hailing trapped by profits
In the prospectus, according to Cao Cao's analysis, the three "deep-rooted" challenges in today's travel industry are analyzed:
First, the user car cost is high and the user experience is poor;
Second, drivers have a heavy workload but low income;
Third, it is difficult for the travel platform to effectively optimize operating costs, resulting in difficulty in making profits.
The first two challenges have only become acute in recent years, but the question of profitability has always been a big one.
The boss Didi has just achieved its first annual profit in 2023, and Dida Chuxing has relied on the ride-hailing business to achieve successive profits with high gross margins, while most of the others are on the verge of losing money or making a profit - even if you look at it globally, high losses and difficulty in making profits have always been the norm in the ride-hailing industry:
Overseas markets, such as Singapore's Grab, Indonesia's GoTo and the United States' Uber, are all facing such problems. In the domestic market, for example, Ruqi Travel, which submitted its IPO not long ago, has lost more than 2 billion in the past three years.
On the one hand, Cao Cao has a fleet of 31,000 customized vehicles in 24 cities across the country, which is currently the largest customized fleet in China, of which about 18,000 are Maple Leaf 80V and 12,000 are Cao Cao 60.
In 2023, the Cao Cao 60 (replaceable) battery pack had an embarrassing falling accident
But the main reason for the loss of more than 7 billion yuan in 3 years also comes precisely from its proudest trait - due to its own fleet, it has always had high operating and sales costs, which swallowed up the continuous growth of profits:
In the past three years, this figure was 8.9 billion yuan, 7.97 billion yuan, and 10.052 billion yuan respectively (the data in the first two years were higher than the revenue) and most of them were used in the income and subsidies for drivers: the prospectus shows that since the establishment of Cao Cao, more than 3 million drivers have used Cao Cao Travel, and the company has paid more than 30 billion yuan to drivers for services.
The cost of more than 10 billion yuan was invested, but in the end, Cao Cao's GTV (total transaction value) of 12.2 billion yuan in 2023 was obtained, accounting for about 4.79% of the online car-hailing market share. As a heavy asset-based travel company with its own platform and a fleet of vehicles, Cao Cao Travel will obviously not go as light and fast as platform companies like Tick. The revenue is increasing year by year, the loss is narrowing year by year, and then it will be profitable, which is already a kind of progress for it.
In addition, Cao Cao Travel also added preferential selection on the basis of the special bus line. In addition to the "expensive" and "elite" positioning of the car, the affordable into its own business, now, it has also become the core service of Cao Cao's two major online car-hailing lines.
While Cao Cao Travel has made adjustments in response to market changes, its revenue growth in recent years is also inseparable from the traffic brought by the aggregation platform interface - strengthening cooperation with the aggregation platform has even become one of the three key factors for Cao Cao Travel to maintain continuous growth in performance.
In recent years, almost every software wants to try an aggregation platform: from 2021 to 2023, AutoNavi seized the window period of Didi's rectification, used map software as a traffic entrance in the travel field, connected to many online car-hailing companies, achieved rapid market share expansion, and became the second in the industry around 2022. In 2023, Meituan will abandon its self-operated taxi and turn to the aggregation model, and Douyin will also open up the entry of travel service providers to enter the game with the aggregation model.
Relevant data predicts that by 2028, aggregators will account for 49% of ride-hailing orders.
From 2021 to 2023, its GTV from aggregation platforms will be 3.9 billion yuan, 4.4 billion yuan and 8.9 billion yuan, accounting for 43.8%, 49.9% and 73.2% of the company's GTV in the same period, respectively.
For Cao Cao, which is moving forward slowly, the aggregation platform has a lower cost of customer acquisition and more cost-effective traffic, which is indeed a good way to quickly increase the scale of revenue and profitability. However, the traffic is controlled by others, and Cao Caoxing, who was copied by a third party, comprehensively described the financial risks he may encounter in the future in the prospectus, the most prominent of which is:
"We rely on third-party aggregators to process a large number of orders, and if the aggregator industry consolidates, they may have to accept unfavorable terms due to their limited bargaining power."
03 Volume service, can it roll out Cao Cao's future?
The ride-hailing market has been around for more than a decade and is now clearly a buyer's market.
In high-tier cities, where traffic jams are often in the morning and evening rush hours, public transportation is significantly faster than traffic jams, which is a strong diversion for online car-hailing; As for the lower-tier cities, the continued rise in the ownership of two-wheeled cars and private cars, as well as consumers' sensitivity to everyday prices, make ride-hailing not a good business there.
On the user side, the response efficiency of the service platform has been "spoiled" by a large number of users: workers who are still half an hour late in the morning cannot afford the trial and error cost of waiting for 20 minutes for a car. In this case, the only way to do this is to try several platforms, which one is fast, which one is cheaper, and which system is easy to use, and the dependence on which platform is deepest.
The density of vehicles determines the "winner-takes-all" in this market, entering a positive cycle of more passengers, more drivers, and more passengers; Even if the aggregator platform can give users a ride-hailing speed similar to Didi's, there are still shortcomings in supporting guarantees (such as automatic notification of relatives and friends for late-night ride-hailing).
Back to the three issues that consumers are most concerned about today's online ride-hailing: price, response speed, and ride experience. Among them, the problem of price and response speed, compared with online car-hailing peers, it is difficult for Cao Cao to open a qualitative gap. Will improving the riding experience allow Cao Cao to effectively achieve revenue growth after going public?
This is precisely the quality travel that Cao Cao has been "proud of" since starting from a special car. Over the years, it has not pulled a significant gap with its competitors. In the past two years, it has been reported that the main travel experience and professional quality of the "national car" Cao Cao Travel are in name only. For example, the travel fee standard is different, the number of special cars is insufficient, the taxi is slow, the driver service is poor, and the riding experience is poor.
Obviously, Cao Cao has been aware of this problem, and wrote in the prospectus that the amount of funds raised will be used to upgrade and launch customized cars in the next three years, which will be used to improve the company's car service solutions and improve the company's service quality, etc.
In the future, through more refined operations, improving service standards, giving users a better riding experience, and being a small and beautiful company that focuses on privacy, safety and hygiene, and loyal passenger experience, it is not a kind of wisdom in today's market with limited growth.
References:
1. Why are automakers turning into mobility service providers? Gong Jinhui
2. "National Special Car" Cao Cao Travel Experience Report: The Quality of the Disappearing Special Car
3. The "originator of online car-hailing" parachuted into Cao Cao's travel, can he challenge Didi? Leopard changes