Last Thursday, Chinese ridesharing titan Didi Chuxing Technology Co. disclosed plans to go public as early as July. The filing sets the stage for Didi to pull in vast swathes of capital upon its eventual debut on an as yet unidentified U.S. exchange.
Sources close to the matter told the Wall Street Journal that Didi hopes to pull in 8-10% of its potential $70-$100 billion valuation through its IPO. Although, Didi's valuation could beat these initial targets, given Wall Street's seemingly intractable appetite for shares of newly listed high-growth companies, like Didi.
The company hopes to use the money raised through its IPO to expand its product and service offerings and develop footholds in markets beyond Chinese shores, specifically in Europe.
The IPO will help Didi leverage its position at the fore of the Chinese ride-hailing industry, an industry that could be worth $99.5 billion by 2023, according to Daxue consulting.
"Ride mobility is one of the most significant growth industries in Asia," Gary Dugan, CEO of Global CIO's Office in Singapore, told Bloomberg. Dugan added that the scale of Didi's anticipated valuation "shows just how much economic value continues to be created" through platforms like Didi's.
Didi Chuxing was founded in 2012 by former Alibaba (NYSE: BABA) Whiz Kid Cheng Wei. The platform offers a similar feature set to Uber's (NYSE: UBER)-allowing users to hail rides, taxis, and carpooling services through their mobile devices. Although, the company has since diversified its offerings to include logistics services, allowing users to book delivery vans to run between or within cities in China.
Didi managed to achieve market dominance through a series of strategic mergers and takeovers. In 2015 the company merged with Kuaidi, which was then one of China's largest ride-hailing services.
The company managed to use this scale in 2016 to wage a brutal pricing war with Uber, which resulted in the latter capitulating and agreeing to sell its China division in exchange for a 12.8% stake in the company.
Like other ridesharing companies, Didi has a history of losses. Since the industry's inception, ridesharing platforms have traditionally kept prices low to the detriment of profits in an effort to expand their market share.
Didi is seemingly no exception, and just like other digital taxi services, the pandemic hit Didi especially hard. In the first three months of 2020, the value of Didi's core business fell by a third and didn't recover until the latter half of last year. In 2021, however, Didi did manage to pull in ¥196 million profit through the first quarter.
Looking ahead, Didi is banking on China's evolving post-pandemic recovery, hoping it can cash in as life returns to normal and travel resumes.
But the company also cited regulatory risks in its filing documents, hinting at future hurdles that could derail its IPO and its plans for future growth. "Didi doesn't have a solid foundation to support a valuation of $100 billion" Cheng Meng, a director at the Beijing-based investment bank, Chanson & Co, told Bloomberg. "The company's growth has plateaued, while expanding overseas is no easy matter."