Didi: After Cutting Drivers and Employees, Finally Regaining the Dignity of Making Money

On the evening of May 29th, Didi Chuxing quietly released its first quarter financial report after 24 years, with the following key points:

1. Domestic volume increases while prices fall, but still lagging behind the industry?

In the first quarter, Didi's domestic travel Gross Transaction Value (GTV) was 71.4 billion RMB. Although it decreased by 0.4% compared to the previous year's fourth quarter, mainly due to one less day in the first quarter, the daily GTV actually increased by 0.7% compared to the previous quarter. Didi's domestic business volume has been continuously increasing for 6 consecutive quarters, and the ride-hailing industry is gradually recovering, which is unquestionable.

In terms of volume and price, Didi's domestic business volume in this quarter increased by 1.1% compared to the previous quarter, which was the main driver of GTV growth. However, the overall order volume in the ride-hailing industry increased by 1.9% (according to the Ministry of Transport's calculation, Didi's order volume growth rate was 1.3%), indicating that Didi's order volume growth rate is slightly lagging behind the industry, and its market share has not improved.

In terms of price, the average customer price in China has been declining since the first quarter of 2023, from 25.4 RMB to 24.2 RMB, a cumulative decrease of nearly 5%. This quarter, it decreased by nearly 0.3 RMB compared to the previous quarter, reflecting the current oversupply situation in the ride-hailing industry, which has a profound impact on Didi's performance.

2. Suffering drivers can benefit both customers and platforms

From a revenue perspective, Didi's domestic travel sector's revenue this quarter was 44.9 billion RMB, a decrease of 0.8% compared to the previous quarter, slightly higher than the 0.4% decrease in GTV. However, the platform sales of Didi (equal to GTV - driver commissions/incentives - taxes, etc.) decreased by 4.6% this quarter, significantly higher than the decrease in GTV.

The normal speculation based on the different growth rates of GTV is that user subsidies account for a large proportion of GTV, while the proportion of commissions to drivers is increasing. The financial indicators seem to be inconsistent with the reality of oversupply in the ride-hailing market. However, according to Dolphin Research, this is mainly due to the decrease in the denominator, that is, the price, which magnifies the proportion of commissions and subsidies, as well as the impact of changes in the revenue distribution of carpooling, taxis, and Fliggy.

Based on our calculations, with a decrease of 0.28 RMB in the average customer price and a 1.9% increase in daily order volume, the subsidies given to consumers and the commissions to drivers decreased by 0.17 and 0.15 RMB respectively per order.

After offsetting the impact of the decrease in the average customer price and the reduction in subsidies, the platform's retained average income per order actually increased by 0.04 RMB, the actual payment per order by consumers decreased by 0.11 RMB, and the average commission to drivers decreased by 0.15 RMB. (The above is mainly directional judgment, and the specific values may not be accurate).

In other words, at the expense of a decrease in average driver income, the majority of benefits have been passed on to consumers, a small portion to the platform, which is consistent with the oversupply situation 3. Stable Performance in Overseas Business

The growth of overseas business has been relatively stable, with a slight decrease of 3.2% in turnover compared to the previous quarter. Although it is not as strong as the domestic counter-seasonal growth, considering the fewer days in the first quarter, it is reasonable. In terms of price and volume, the order volume increased by 2.3% compared to the previous quarter, mainly due to a 4% decrease in average order value compared to the fourth quarter, which included several important overseas holidays, dragging down the turnover growth. Overall, it was a mediocre performance.

However, platform sales and financial revenue both increased by 18% and 9.5% respectively compared to the previous quarter, significantly higher than the GTV growth rate. It can be inferred that DiDi has significantly increased its monetization rate in overseas business.

4. Aggressively Cutting Costs Internally, Significantly Releasing Profits

Due to the actual increase in profitability of the domestic travel business platform and the noticeable increase in monetization rate of overseas business, DiDi's gross profit in this quarter increased significantly by 600 million, with a gross profit margin increase of 1.4 percentage points.

The cost savings were even more remarkable, with a total reduction of 1.6 billion yuan in operating expenses compared to the previous quarter. Specifically, marketing and research and development expenses each decreased by nearly 500 million yuan, with the greatest reduction in cost. It can be reasonably inferred that DiDi has significantly cut back on user acquisition and brand promotion externally, and may have also laid off some development staff internally.

As a result, DiDi achieved a positive GAAP operating profit for the first time this quarter, with a profit of 400 million yuan. The contribution of cost control internally is still greater than the improvement in the business's own profit-making ability.

5. Significant Improvement in Domestic Business Profit, while Overseas & Innovation Continue to Reduce Losses

Looking at different segments, DiDi's adjusted EBITA profit for the domestic sector reached 2.14 billion, showing a significant improvement compared to the previous situation of just under 1 billion. The EBITA profit margin (compared to GTV) increased to 3%.

The losses in overseas and emerging businesses have also narrowed this quarter, with the EBITA loss in overseas business shrinking to 340 million, and the innovation business, although significantly reduced compared to the previous quarter, still incurred a loss of about 800 million for the quarter, which is relatively high.

Dolphin Research Point of View:

Overall, compared to the fourth quarter of last year, DiDi has made significant improvements in the situation where growth is slower than the industry and profits are not being realized. Although the growth rate of domestic orders in this quarter is likely still lagging behind the industry, in a market where there is clearly an oversupply of ride-hailing services, the bargaining power of the three participants in the market is evidently consumers > platform > ride-hailing drivers. Therefore, despite the decrease in average order value, the platform's retained earnings have slightly improved.

The more aggressive cost-cutting internally has immediately released the adjusted EBITA profit of the domestic business to over 2 billion, making it highly likely that DiDi will achieve its target of 8 billion EBITA for the full year of 2024 in the domestic business. As for the overseas business, although the company still expects to continue making losses within 2024, growth remains a priority rather than a quick turnaround to profitability Despite acknowledging that Didi's financial performance this quarter has shown significant improvement, it can be seen that the contribution of internal control expenses is higher than the improvement in the business's own profitability. However, cost control is only a temporary measure and cannot be sustained in the long term. From a valuation perspective, even if the company's domestic business achieves an adjusted EBITA of over 10 billion, excluding losses from overseas and innovative businesses, the current market value corresponds to a valuation multiple of nearly 24-25x of domestic after-tax profits, which is still considered a high level that Dolphin Investment Research finds difficult to understand.

Detailed comments are as follows:

Despite an increase in volume but a decrease in price, is Didi still unable to outperform the industry?

The key operating data shows that in the first quarter of 2024, Didi's domestic travel Gross Transaction Value (GTV) was 714 billion. Although the absolute value decreased by 0.4% compared to the previous four quarters, due to one less day this quarter, the daily average GTV actually increased by 0.7% compared to the previous quarter. In other words, after overcoming the dual impact of the pandemic and regulations, Didi's domestic business volume has been steadily increasing for 6 consecutive quarters, indicating a gradual recovery.

Looking at the breakdown of price and volume, from the perspective of order volume, Didi's domestic travel order volume (including ride-hailing, Hitch, and other services) increased by approximately 1.1% compared to the previous quarter, with the growth rate of orders outperforming transaction volume. However, according to the Ministry of Transport, the overall order volume of the ride-hailing industry increased by 1.9% this quarter (it is important to note that the order volume criteria disclosed by the Ministry of Transport and Didi may not necessarily be consistent). If we use the Ministry of Transport's data on Didi's domestic ride-hailing order volume (excluding Huaxiaozhu and Hitch services), it increased by 1.3% this quarter.

Based on the order volume growth rates provided by the company itself and the Ministry of Transport, it is highly likely that Didi's ride-hailing order volume in the first quarter is still lagging behind industry growth. According to CICC's estimation, apart from a brief spike in market share to 77% during the Chinese New Year period in February, Didi's market share from January to March-April (excluding Huaxiaozhu) has largely remained at 73%, with no signs of improvement.

However, Didi's average order value in China has been continuously decreasing since the first quarter of 23, from 25.4 yuan to 24.2 yuan, with a cumulative decrease of nearly 5%. This has led to GTV growth being lower than the growth in order volume. Dolphin Research believes that the continuous decline in order value clearly reflects the gradual oversupply in the ride-hailing market, with far-reaching implications.

As for the growth of overseas business, it is relatively stable: the transaction volume in the first quarter decreased slightly by 3.2% compared to the previous quarter, not as strong as the domestic business. However, considering the short-term seasonal impact in the first quarter, it is reasonable. In terms of price and volume factors, the order volume actually increased by 2.3% this quarter, mainly because the order value decreased by 4% compared to the fourth quarter, which included several important overseas holidays, dragging down the transaction volume growth. Nevertheless, this is a reasonable seasonal change, so overall, the growth of overseas business is relatively stable.

Second, passenger incentives increase, while driver revenue share decreases, with the former being the main source of profit elasticity

From a revenue perspective, Didi's domestic travel sector revenue this quarter was 44.9 billion yuan, a decrease of 0.8% compared to the previous quarter, which is slightly larger than the 0.4% decrease in GTV. However, considering the different revenue criteria for businesses like Huaxiaozhu and Shunfengche, such a small difference can be considered almost the same.

Therefore, based on the revenue recognition criteria of "Didi's revenue = GTV - consumer incentives - taxes, etc.," it can be generally assumed that the proportion of subsidies given to consumers by Didi this quarter may be roughly the same as GTV. After all, the average order value (ASP) has been continuously decreasing, to some extent replacing the role of subsidies.

On the other hand, Didi's platform sales (equal to GTV - driver revenue share/incentives - taxes, etc.) decreased by 4.6% compared to the previous quarter, significantly higher than the decrease in GTV. From this perspective, the overall proportion of revenue paid to drivers as revenue share/incentives seems to have slightly increased (of course, there is also the impact of changes in revenue structure, but it is difficult to separate), which seems inconsistent with the oversupply situation in the domestic ride-hailing market.

However, according to Dolphin Research's breakdown calculation, the seemingly increased proportion of driver revenue share is mainly due to the decrease in the denominator caused by the decrease in average order value. According to our calculations, with a decrease of 0.28 yuan in average order value, and a 1.9% increase in daily order volume, the subsidies given to consumers and the revenue share given to drivers per order have decreased by 0.17 and 0.15 yuan, respectively **

According to the calculation by Dolphin Research, based on the formula "Platform Retained Earnings Change = Average Order Price Change - Consumption Subsidy Change - Driver Revenue Share Change" and "Actual Consumer Payment Per Order Change = Average Order Price Change - Subsidy Change", it can be seen that the platform's retained average earnings actually increased by 0.04 yuan, the actual consumer payment per order decreased by 0.11 yuan, and the driver's average revenue per order decreased by 0.15 yuan. (The above is Dolphin Research's own calculation, more for directional judgment, the numbers cannot be guaranteed for accuracy). In other words, still at the expense of reducing the average income per driver, the majority of the benefits were passed on to consumers, with a small portion going to the platform.

In overseas operations, although GTV decreased on a month-on-month basis due to seasonal reasons, both platform sales and financial revenue have significantly increased, by 18% and 9.5% respectively. This indicates that DiDi has significantly increased its monetization rate in overseas operations.

III. Significant Increase in Losses in Overseas & New Businesses, Dragging Down Overall Company Profits

Due to the increase in actual retained profits in the domestic travel business platform and the significant increase in monetization rate in overseas operations, DiDi's gross profit for this quarter has significantly improved. Despite a slight decrease in total GTV and revenue on a month-on-month basis, the gross profit value increased by about 600 million yuan, and the gross profit margin also increased by about 1.4 percentage points.

The savings on the expense side are even more remarkable, with a total reduction of 1.6 billion yuan in operating expenses on a month-on-month basis. Among them, equity incentive expenses remained at around 520 million, significantly lower than the 800-1 billion in 2022. Specifically, marketing and R&D expenses each decreased by nearly 500 million on a month-on-month basis, with the greatest cost reduction. It is reasonable to infer that DiDi has significantly cut back on user acquisition and brand promotion externally, and most likely also reduced a significant number of programmers internally.

Therefore, with a 6 billion increase in gross profit and 16 billion in expense savings, DiDi achieved a positive GAAP operating profit for the first time this quarter, with a profit of 400 million yuan. However, the contribution from cost control is still greater than the improvement in business model profitability.

Looking at the segments, DiDi's domestic sector adjusted EBITA profit reached 2.14 billion, showing a significant improvement from the previous nearly 1 billion situation. The EBITA profit margin (compared to GTV) has increased to 3% From the current trend, it seems that achieving a full-year EBITA profit of 8 billion in 2024 with a profit margin of around 2.8% should not be a big issue, and it may even slightly exceed expectations. However, the main contribution to profitability still depends on Didi's subsequent cost allocation strategy.

Losses from overseas and emerging businesses have also narrowed this quarter, with overseas EBITA losses narrowing to 340 million**. However, the company still expects overseas businesses to continue to incur losses for the full year and not turn losses into profits in the second half of the year. It can be seen that the company still prioritizes growth overseas.

Although the losses from innovative businesses have significantly narrowed on a quarter-on-quarter basis, they still incurred losses of about 800 million in a single quarter, and may still incur losses of around 3 billion for the full year.

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Dolphin Research on Past [Didi Chuxing] Analysis:

Financial Report Reviews

March 25, 2024 Financial Report Review "The true colors of the root cause, is the "old" Didi just "surviving"?"

November 13, 2023 Financial Report Review "Didi: Shedding the wolf nature, the "good old days" that can't be returned to?"

September 11, 2023 Financial Report Review "Didi: The golden age that can't be returned to?"

July 11, 2023 Financial Report Review "Up by 10%, has Didi really turned the tide?"

May 8, 2023 Financial Report Review "Didi: Squashed and rounded, starting over? Finally coming back to life"

April 17, 2022 "Didi: Ending the 'wailing' drama"

In-depth Research

December 30, 2021 "Didi pays a heavy price, unfortunately there is no regret medicine" July 1, 2021 "Didi: Worth 70 Billion - Worth it or Not?"

June 24, 2021 "Unveiling Didi's Ride-Hailing 'Utopia' | Dolphin Research"