Didi: "Lying flat" domestically, not fast enough overseas

On the evening of January 29th, Friday, $DiDi(DIDIY.US) announced its Q3 2024 financial report, and here are the key points:

1. In terms of operational data, in Q3, DiDi's domestic mobility GTV grew by 7.8% year-on-year, remaining roughly flat compared to the previous quarter, and after exiting the volatility period of the past two years, the growth rate of domestic business has basically returned to around 10%, slightly higher than the industry or GDP growth rate during the fully matured period. On a quarter-on-quarter basis, this quarter's domestic GTV increased by 6.3%, which is relatively weak compared to the same period in 2023 and 2019, but is generally consistent with the trends reflected in other industries such as retail and hospitality.

Breaking down price and volume, the average transaction price of domestic business is still on a downward trend year-on-year, decreasing by 2.5% this quarter, but in the current environment, the continuation of price deflation is not surprising. In terms of order volume, DiDi disclosed that the domestic mobility order volume increased by 11% year-on-year, which is also stable but slightly declining, not much different from the previous quarter.

A noteworthy signal is that according to the Ministry of Transport's data, DiDi's domestic ride-hailing order volume (excluding Huaxiaozhu, carpooling, and aggregation services) increased by 3% quarter-on-quarter, outperforming the overall growth of the ride-hailing industry (2.9%) for the first time in recent quarters. This also indicates the stabilization of DiDi's domestic business and market share.

2. From a revenue perspective, DiDi's domestic mobility revenue for this quarter was 48.2 billion yuan, a year-on-year increase of 3.3%, which is an improvement from 2.6% in the previous quarter, but clearly still significantly underperforming the corresponding GTV growth of about 8%. It can generally be considered that in the current weak demand environment, there is still a high demand for consumer-side subsidies.

DiDi's domestic platform sales this quarter grew by 24% year-on-year, continuing to significantly outperform the growth rates of GTV and revenue, similar to the previous quarter. Besides the impact of changes in business and revenue structure, it can also be inferred that the growth of driver shares is relatively slower.

However, from the performance of e-commerce companies and Meituan, platform operators are generally taking actions or showing tendencies to improve monetization in the current relatively "weak demand & strong supply" environment, to hedge and adjust against the pressures from the broader environment.

3. Overseas business continues to maintain relatively strong growth, with this quarter's GTV growing by 20% year-on-year**(the previous two quarters were 51% and 39%), which seems to show a significant slowdown. However,in terms of driving factors, the order volume growth of overseas business is still at 33%, which is not significantly lower than the previous two quarters' 44% and 39%. The nominal growth slowdown isdragged down by a nearly 10% year-on-year decline in average transaction price, andis mainly affected by exchange rate factors. Excluding the impact of exchange rates,the GTV growth rate of international business actually reached 33% when adjusted for comparable exchange rates.**

Compared to the more volatile price factors, the growth in volume is more endogenous and has greater continuity, which has more significant guiding significance for whether this business can ultimately succeed.

4. In terms of segment profit indicators, Didi's domestic segment adjusted EBITA profit for this quarter is 2.49 billion, showing a slight increase compared to the previous quarter, with the EBITA profit accounting for 3.2% of GTV, consistent with the previous quarter. This aligns with the growth indicators— indicating that Didi's domestic business is generally in a stable state in the medium to short term.

Meanwhile, the continued significant reduction in losses from overseas and other innovative businesses is a highlight. Firstly, the adjusted EBITA loss for overseas business this quarter is 300 million, with a loss rate (relative to GTV) reaching a historical low of 1.3%. This did not result in an expanded loss rate as the company previously indicated due to increased overseas investments. The losses from other innovative businesses have also narrowed to 450 million this quarter, which is also a new low in recent years.

Didi's overall adjusted EBITA for this quarter reached 1.74 billion, a quarter-on-quarter increase of 37%, although the profit margin of the domestic segment has stabilized, the reduction in losses from other segments still squeezed out a considerable amount of profit.

5. From the perspective of costs and expenses, the source of incremental profit. The expenses contributed basically nothing to the improvement of profit margins this quarter, with the proportion of four operating expenses to revenue remaining roughly the same as the previous quarter. The R&D and management expense ratios increased slightly by 0.2 percentage points compared to the previous quarter due to equity incentives.

Therefore, the improvement in profit margins mainly comes from the gross profit side, with the gross profit margin slightly increasing from 18.6% to 19%. Although the increase is smaller compared to the previous quarter, this aligns with the overall stabilization of domestic business profit margins, with the incremental gross profit margin mainly contributed by the smaller proportion of overseas and innovative businesses.

While we lack data to attribute the specific sources of the gross profit margin improvement, it is clear that the additional profit is not squeezed out by controlling expense spending, but rather comes from enhanced business monetization capabilities or optimized revenue structures.

Dolphin Investment Research Perspective:

Overall, Didi's performance in the third quarter did not change significantly compared to the previous quarter. The domestic business generally continued the trend of the previous quarter, while the overseas business maintained good growth, and the narrowing of losses is a highlight. Specifically:

In the domestic business, with the market position basically established and the overall industry growth not showing significant fluctuations, Didi has maintained a growth rate of about 10%+ that is equal to or slightly better than the industry. As an absolute leader in an industry with naturally high barriers to entry (with a market share of about 70%), and having the strongest bargaining power among the platform, passengers, and drivers, there is considerable operational space to adjust commission levels and regulate its own profitability. This has been widely validated in various industries recently.

As the overseas business has stabilized in the domestic market and is generating stable profits, the company's management has more energy and resources to refine operational efficiency, reduce losses, and attempt to bring broader market space after the domestic business has nearly maturedLooking ahead, Dolphin Investment Research believes that the domestic market will remain generally stable. Based on changes in the broader environment, the company will make slight adjustments or swings between focusing more on profits or on growth and market share. Meanwhile, overseas operations will take advantage of this time window to attempt to achieve true internationalization (i.e., approaching the scale of domestic operations) without significantly dragging down the overall profits of the group.

From a valuation perspective, Didi's stock price currently faces a significant bottleneck around $5, making it difficult to break through upwards. We believe this is still due to the fact that overseas operations have not yet achieved stable profitability, and the main determining factor for valuation remains domestic operations. Currently, the "stable and improving" domestic performance is insufficient to support a true upward breakthrough.

From a medium to long-term perspective, attention should be paid to whether the electrification or intelligentization of vehicles can deliver more additional profit margins on the UE. In other words, whether it can truly open up international markets or achieve business diversification like Uber. However, over the past two quarters, we have not seen any real signs of a second breakthrough.

The following are key performance charts and comments:

1. Didi's domestic growth remains stable, while overseas growth is still impressive

In terms of underlying operational data, in the third quarter of 2024, Didi's domestic mobility achieved a GTV of 78.1 billion yuan, a year-on-year increase of 7.8%, which is roughly flat compared to the previous quarter and shows slight deceleration. After emerging from the volatility period of the past two years, the growth rate of domestic operations is converging towards the medium to long-term average, slightly above GDP growth, at around 10%. On a quarter-on-quarter basis, this quarter's domestic GTV grew by 6.3%, compared to 7.2% and 8.1% in the same periods of 2023 and 2019, respectively. The seasonal growth in the third quarter of this year is relatively weak, consistent with the macroeconomic changes reflected in retail, hospitality, and other sectors.

Breaking down price and volume, in terms of order volume, Didi's disclosed domestic mobility order volume (including ride-hailing, carpooling, and chauffeur services) increased by 11% year-on-year, showing a stable but slightly declining trend after the high volatility period of the base. On a quarter-on-quarter basis, this quarter's growth rate is 6%, similar to the GTV trend, and the seasonal growth during this summer is relatively weak compared to previous years.

According to the Ministry of Transport, the overall order volume of the ride-hailing industry grew by 2.9% quarter-on-quarter this season (note that the order volume metrics from the Ministry of Transport and Didi are not consistent). Under the Ministry of Transport's metrics, Didi's domestic ride-hailing order volume (excluding Huaxiaozhu, carpooling, and aggregation services) grew by 3% quarter-on-quarter.

According to the Ministry of Transport's metrics, it can be seen that Didi's self-operated ride-hailing order volume growth is no longer lagging behind the industry growth rate for the first time in four quarters, and domestic market share is basically stabilizing.

From a pricing perspective, Didi's average transaction price for domestic business this season is still on a downward trend year-on-year, decreasing by 2.5% this season. In the current environment, it is not surprising to see a continuation of price deflation. In terms of product structure, the increase in the proportion of Didi's special offers, carpooling, and Huaxiaozhu will also lead to a decline in the overall average transaction price from a structural perspective.

Overseas business continues to maintain relatively strong growth, with GTV up 20% year-on-year this season (the previous two seasons were 51% and 39%), which seems to show a significant slowdown. However, in terms of driving factors, the order volume growth rate for overseas business is still 33%, which is not a large slowdown compared to the previous two seasons' 44% and 39%. This is mainly dragged down by a nearly 10% year-on-year decline in average transaction price, and is primarily affected by exchange rate factors. Excluding the impact of exchange rates, the GTV growth rate for international business actually reaches 33% when adjusted for exchange rates.

While the price drop may directly affect current performance, from a medium to long-term perspective, whether the business volume can maintain decent growth is of greater significance for the ultimate success of this business.

II. "Heavy demand" and "light supply" have become a common phenomenon across various industries

From a revenue perspective, Didi's domestic mobility segment generated revenue of 48.2 billion yuan this season, a year-on-year increase of 3.3%, which shows some improvement compared to the previous season's 2.6%, but clearly still significantly underperforms the corresponding GTV growth rate of about 8%. Dolphin Investment Research believes that, on one hand, the change in the proportion of businesses such as chauffeur services and carpooling that recognize revenue based on net income has an impact, and on the other hand, based on Didi's domestic self-operated business's revenue recognition criteria of "revenue = GTV - consumer incentives - taxes, etc.", it can generally be inferred that Didi has a persistent and high demand for consumer subsidies to attract, retain, and incentivize users to place orders in the current weak demand environment.

From another perspective, Didi's domestic platform sales this season increased by 24% year-on-year, continuing to significantly outperform the growth rates of GTV and revenue, just like the previous season. According to the calculation method of "platform sales = GTV - driver share/incentives - taxes, etc.", aside from the impact of changes in revenue structure from different businesses such as aggregation and chauffeur services, it can generally be inferred that the growth of driver shares is significantly lower.

According to the company's disclosed platform sales/GTV calculation, the overall monetization rate of domestic business platforms reached 20.6% this quarter, continuing to rise from 18.1% and 19.7% in the previous two quarters. From the recent performance of e-commerce leaders and Meituan, it is evident that platform operators generally have operations or tendencies to improve monetization rates, which to some extent hedges against pressures from the broader environment and adjusts and improves the company's performance, which is a common phenomenon in many industries recently.

For the overseas business, the revenue growth rate year-on-year was 44%, which increased compared to the previous quarter, continuing to outperform GTV growth. However, the growth rate of platform sales for overseas business was only 16%, showing a significant slowdown compared to the previous quarter. According to the company's explanation, the significant differences in absolute growth rates and trends between platform revenue and overall revenue are due to several factors. In addition to the significant impact of exchange rate factors affecting overseas business by 10 percentage points, the revenue scope for overseas business includes financial-related income, while Platform sales only include businesses related to offline fulfillment such as food delivery and ride-hailing. Additional financial income is also one of the reasons why revenue growth is significantly higher than the growth rate of Platform sales.

III. Relying solely on overseas and new businesses to reduce losses can still squeeze out considerable profits

In terms of profit indicators, Didi's domestic segment adjusted EBITA profit this quarter was 2.49 billion, a slight increase compared to the previous quarter, with EBITA profit accounting for 3.2% of GTV, consistent with the previous quarter. This aligns with the trend reflected in the near-flat growth rates of key indicators such as GTV and Platform sales—indicating that Didi's domestic business has generally reached a stable state in the medium to short term.

Compared to the already "stable" domestic business, the continued significant reduction of losses in overseas business and other innovative businesses can be considered a highlight. Firstly, the adjusted EBITA loss for overseas business this quarter was 300 million, with a loss rate (relative to GTV) hitting a historical low of 1.3%. It did not expand as the company previously indicated due to increased overseas investments. Other innovative businesses saw their losses continue to narrow to 450 million this quarter, also a new low in recent years.

Therefore, Didi's overall adjusted EBITA for this quarter reached 1.74 billion, a quarter-on-quarter increase of 37%. Although the profit from the domestic segment, which accounts for the largest share, only slightly increased quarter-on-quarter, the reduction in losses from other segments still managed to squeeze out a considerable amount of profit.

4. Expense spending slightly widened, with additional profits coming from "earning" rather than "saving"

So what is the source of the company's profit improvement from the perspective of costs and expenses? First, Didi's gross profit margin continued to slightly improve this quarter, from 18.6% to 19%. The increase was marginally narrowed, which is consistent with the fact that the profit margin of the domestic business, which has the largest share, has leveled off. The incremental gross profit margin mainly comes from the contributions of smaller overseas and innovative businesses.

The improvement in profit margin this quarter from expenses did not make a significant contribution. The proportion of the four operating expenses to revenue remained roughly the same as the previous quarter, while the R&D and management expense ratio increased slightly by 0.2 percentage points compared to the previous quarter, mainly due to an increase in equity incentive expenses.

It can be seen that the improvement in Didi's profit margin this quarter mainly comes from the gross profit side, although we lack data to attribute the specific sources of the improvement in gross profit margin. However, it is known that the additional profits were not squeezed out by controlling expense spending, but rather came from the enhancement of business monetization capabilities or the optimization of revenue structure.

Dolphin Investment Research's past analysis on [Didi Chuxing]:

Financial Report Commentary

Financial report commentary on August 23, 2024 《 Squeezing Profits, Does Didi Also Have a Sunset Red? 》

Financial report commentary on May 30, 2024 《 Didi: Finally Regained the Dignity of Making Money 》

Financial report commentary on March 25, 2024 《 The Root Cause Revealed, Is "Old" Didi Just Left with "Getting By"? 》

November 13, 2023 Financial Report Review: Didi: Shedding the Wolf Nature, Can't Go Back to the "Good Times"?

September 11, 2023 Financial Report Review: Didi: Can't Go Back to the Golden Era?

July 11, 2023 Financial Report Review: Up 10%, Has Didi Really Turned Around?

May 8, 2023 Financial Report Review: Didi: Starting Over from Scratch? Finally Survived

In-Depth Research

December 30, 2021: The Cost of Didi is Too Heavy, Unfortunately There is No Regret Medicine

July 1, 2021: 700 Billion Didi: Is it Worth It or Not?

June 24, 2021: Unpacking Didi's Travel "Utopia" | Dolphin Investment Research

Risk Disclosure and Statement of this Article: Dolphin Investment Research Disclaimer and General Disclosure