Didi: coming back to life after squeezed and kneaded

During the May Day holiday, Didi Chuxing, a major player in the ride-hailing market, released its 2022 annual performance report.

Overall impression: Compared to the heavy price paid for rushing to go public the previous year ("Didi's price was too heavy, but unfortunately there is no regret medicine"), 2022 seemed more like a slump in the industry itself (people's activities were restricted) and a decline in market share, resulting in sluggish orders.

However, the market share of orders stabilized in the second half of last year (with a significant decrease in driver and passenger subsidies), and the company's internal cost-cutting measures improved profitability, which was actually much better than it appeared on paper, and the actual results were not as bad as imagined.

1. The absolute backbone of Didi's business - China's ride-hailing transaction volume fell by 20%, with a 19% decline in order volume and a slight drop of 1% in average price.

According to data from the Ministry of Transport, the total number of online ride-hailing orders in China in 2022 fell by 16%, and Didi, the leader in the industry, fared worse than the industry, with a 23% year-on-year decline in order volume. In terms of actual delivery, Didi's revenue performance was indeed poor during the year of rectification, but not as bad as imagined.

1. Since nearly 90% of Didi's revenue comes from its self-operated ride-hailing business in China, the proportion of self-operated and aggregated models in China's ride-hailing market is relatively stable, and the downward trend in China's ride-hailing transaction volume has basically locked in the decline in revenue: Didi's total revenue in 2022 was 140.8 billion yuan, a year-on-year decrease of 19%, of which China's ride-hailing revenue was 124.2 billion yuan, a year-on-year decrease of 22%. Due to the slightly higher passenger subsidy rate, this decline in ride-hailing transaction volume of more than 20% is higher than the overall decline, but it is basically controllable.

2. If the poor revenue performance was not an unexpected negative, then Didi's profit in 2022 was actually much better than its revenue: Although the net loss of 23.8 billion yuan in 2022 was alarming, this figure does not reflect the actual operating conditions as it includes too many non-core losses such as investments. However, the operating loss not affected by non-core factors was 12.8 billion yuan, which is also alarming at first glance, but don't forget that there was a one-time fine of 8.026 billion yuan. After deducting the fine, it is clear that Didi has stabilized its position and its profitability has begun to recover from the second half of 2021, as seen from the subsidy situation for drivers and passengers in 2022. (Note: This part of the calculation is more complex, and the main text provides a detailed explanation).

3. International business "is doing pretty well": Overseas business has emerged from the shadow of natural disasters, with a year-on-year increase in transaction volume of 32%, but this growth is mainly driven by an increase in average transaction price, with only a 6% increase in order volume.

The average transaction price increased by 24% year-on-year, reaching 25.5 yuan, and since Didi's international business is mainly in Brazil, the actual year-on-year growth rate of average transaction price is even higher considering the devaluation of the Brazilian real compared to the Chinese yuan. The high increase in price is mainly due to the rise in ride-hailing prices driven by the increase in oil prices.The core platform sales of international business (GTV, excluding commissions and rewards given to drivers and delivery partners, with sales figures almost identical to the revenue of international business, all in 3P mode) reached 6 billion, an increase of 81% year-on-year, far exceeding the growth of transaction volume during the same period. It is obvious that the commissions and subsidies given to drivers and partners in Didi's international business are narrowing.

Due to the reduction of subsidies, the losses of international business have also begun to narrow rapidly. In 2022, the losses of international business were 4 billion, which is 1.8 billion less than last year.

5. The platform economy has no shortage of money: By the end of 2022, the company's net cash (cash and equivalents + short-term investments - long and short-term interest-bearing liabilities) was 32 billion (of which the IPO financing was about 27 billion), corresponding to an actual operating cash outflow of only 2 billion after deducting the 8 billion fine in 2022. In other words, as a platform economy for travel, Didi collects money from users first and then pays drivers. As long as it does not burn money to expand its business crazily, there will be no cash flow crisis.

Overall, as a year of starting from scratch in 2022, it is expected that there will be some shortcomings, especially when Didi's market value has dropped to 15 billion US dollars recently under the high commission rate regulation of regulatory authorities, which is equivalent to the net cash accounting for 30% of the valuation.

However, the actual performance in 2022 is obviously not as bad as the current discounted market value under the liquidity of pink tickets: after deducting the 8 billion fine, the adjusted EBITA of domestic travel under adjustment (excluding non-cash expenses such as amortization and equity incentives) is 6.6 billion, a new high since Didi's listing.

New businesses have basically stopped expanding (revenue has dropped from 9.6 billion in 2021 to 9 billion), and losses have also narrowed to 7.3 billion, which is significantly lower than the level of over 3 billion in the previous quarter.

PS: As the record-keeping methods for Didi's self-operated online car-hailing and POP online car-hailing are relatively complicated (the business segmentation of Didi can refer to the figure below), those who are interested can first review the two in-depth studies written by Dolphin Analyst at the time of Didi's listing 《Peeling Back the Ideal Country of Didi's Travel》 《Is Didi Worth 70 Billion?》 .

Source: Didi's prospectus, Dolphin Research and InvestmentHere let me explain it to you again: The transaction volume reported by Didi actually includes the subsidies given to users, not the actual payment made by users when taking a ride.

In the transaction volume of self-operated online car-hailing services in China, drivers will take their own share, and Didi will give subsidies and incentives to both drivers and passengers. After these external benefits are distributed, the real monetization rate of the Didi platform is left to pay for internal expenses - all research and development, operation, front, middle and back-end, and the remaining is the profit of Didi.

Whether from the transaction scale (80% vs 20%) or monetization ability (10% vs 4%), compared with the travel business of the POP aggregation model, Didi's self-operated domestic online car-hailing is an undisputed source of revenue and profit.

Under the 3P aggregation model, because the driver is not part of the platform itself, Didi only provides order matching, and the monetization rate kicks off the biggest expense item - the platform technical service fee for driver sharing and incentives.

In this year's annual report, Didi still did not disclose the transaction volume, driver sharing, passenger incentives, taxes and fees under the 1P and POP models for domestic travel.

However, since POP's contribution to revenue is relatively small, based on historical reference data and combined with Didi's core platform sales data, Dolphin Analyst calculated Didi's "horoscope" - online car-hailing business under the aggregation (POP) travel model in China in 2022.

Due to the accounting record issues of different business models, the specific calculation process is relatively complicated, and it is not discussed here. Those interested can join the Dolphin Assistant WeChat public account ("dolphinR123") to discuss in the group.

Finally, Dolphin Analyst has come up with some key trends, which can be roughly seen as follows:

(1) Unlike in the second half of 2021 when Didi was just delisted, when the real drivers' promotion/subsidies and passenger subsidies both increased, in 2022 only passenger subsidies are still increasing. To maintain market share, Didi mainly subsidizes passengers, because ride-hailing services are standard products, and passengers will use whichever platform is cheaper, with low stickiness.

(2) Because drivers have historical passenger records, star ratings, and other maintenance records, the conversion cost is relatively high. Also, because the platform has returned to the track of reducing driver commissions, in 2022, for every 100 yuan of transactions on Didi, the increase in driver commissions is reduced by 2.6 yuan, and the increase in passenger subsidies is 80 cents, leaving Didi's real monetization rate at 9%, more than doubling the 3-4% in the second half of 2021, and basically returning to the level of 2020.

Due to the significant reduction in driver commissions, Didi's gross profit and gross profit margin have increased significantly: in 2022, the company's gross profit reached 25 billion, with a year-on-year increase of nearly 50% despite a 19% drop in revenue.

Dolphin Analyst estimates that the domestic travel gross profit margin, which contributes the most to gross profit, has returned to a level close to 12%. The rates for domestic travel excluding drivers have been basically controlled under cost reduction and efficiency improvement. The adjusted operating profit margin (excluding amortization and equity incentives) for domestic travel has reached 5.2%, which is the highest point since the company went public.

In 2022, Didi's domestic travel achieved an adjusted profit of 6.6 billion, which is an improvement compared to 2021. It is already quite impressive to achieve a new high since going public in such an extreme operating environment for both the company and the industry.

From the perspective of the adjusted profit margin, all businesses are basically in the rhythm of comprehensive cost reduction and efficiency improvement. In addition to the rising profit margin of the domestic travel pillar, the losses of international and innovative businesses are also rapidly narrowing.

Data source: Didi's financial report, Dolphin Research and Investment; Note: The loss of 4.7 billion is the number after excluding the 8.026 billion anti-monopoly fine, and the company's caliber does not include this number.