I can't tell if this is a good deal for Uber investors or not. As I understand it, Uber will own a 20% share in the combined company. The combined company is valued at $35 billion, so Uber's share of the value will be $7 billion (actually less, since they also need to share it with Baidu which invested directly into Uber China too). $7 billion doesn't sound too bad as an exit.
However, if Uber's China business is worth only $7 billion, and their current valuation is $68 billion, does that mean the rest of the world is worth 9x China, even though China is one of their largest and highest potential market? Suddenly the valuation of Uber's business outside China looks very inflated (even more than before). Doesn't it?
Uber's China business was losing money before (I believe to the tune of about $1bn/year), and it looked like they weren't going to get a permanent hold in that market. Local competition was very strong.
Consequently, I would conjecture that China was never a large part of Uber's valuation. Leaving it at slightly more than 10% of their valuation seems reasonably realistic to me. Keep in mind:
* The major Chinese cities generally have very developed and efficient systems of mass public transit, reducing demand for rideshares (and cars in general)
* While China is a large country, not everyone can afford an automobile or a rideshare service. There are many reasons why scooters are so popular in SE Asia; this is one of them.
As a Chinese national, I disagree. Taxi experience in big cities in China is generally better because of heavier regulation and competition. In many medium to small cities, it is far worse. Now note Uber only compete in big cities while Didi has already been operating in many smaller cities with large market share. Yet Uber still fails to expand to where ride hailing by app should be popular and desirable.
Scooters? Everyone hates them.
Personal experience: my hometown is a medium city (with a population of ~3 million in urban area), the taxi system there is so broken. Because of the medallion system, to maximize the profit/cost ratio, taxi drivers usually operate their cars 24 hours a day with two shifts. Day shifts are usually taken by locals, and they will try their best not to serve you if the trip goes through traffic-jammed area or remote places. I understand their economic reasoning though. The worst part is every afternoon from 4pm to 6pm, when shift change happens, every taxi driver will refuse your ride request unless you happen to be ride sharing with them to their shift change stops(pretty ironic I think). So as a rider you basically beg for a ride.
That's how Uber/Didi win. You don't beg, you don't worry, you don't get pissed off. You uses an app then you get on a car with better fare (thanks to those steep discounts)
Remember, this is just one city with population of 3MM, there are more than 100 of such cities (with population of 1~3 million) in China. But Uber is not operating in my hometown, let alone many others.
Uber is slow to adopt Alipay or Wechat pay. Uber is slow in expansion.
"The major Chinese cities generally have very developed and efficient systems of mass public transit, reducing demand for rideshares (and cars in general)"
This depends on your frame of reference. If you're comparing with SF, sure. If you're comparing with London or New York, less so. In London, the underground is faster than private car for many (most?) daytime journeys. In Beijing and Shanghai, a private car is almost always faster. Subway stations are spaced too far apart, and the walking involved in changing lines is pretty long. Buses are slower than cars even at times when bus lanes are active.
"While China is a large country, not everyone can afford an automobile or a rideshare service."
The people who don't have cars are precisely the people who use rideshare services.
Compared with the West, in China, ridesharing fares are lower, and the cost of owning+operating a car is higher. I ride Uber 10-15 times per week. The total cost of those rides is 20%-30% of what it would cost to lease and operate my own car, even if parking were free (which it's not).
Lived in Beijing for 2 decades. I think in Beijing and Shanghai, a private car is almost always slower than their subway systems. Beijing subway network has 18 lines, 334 stations and 554 km (344 mi) of track in operation and is the second longest subway system in the world after the Shanghai Metro (588 kilometres). Beijing subway also has extensive expansion plans call for 1,050 km (650 mi) of track by 2020.
I've lived in Beijing for the last 9 years. I beat the subway in a taxi on my commute from work to home except during peak rush hour. I work and live on 4th ring, it is a straight shot on line 10 without a transfer (ideal subway shot, routes are identical). Couple that with the subway never having seats, being ultra crowded (say hello to your neighbor's BO), and often having long lines to even get in the station via BS security, I've completely given up on the subway unless the traffic is really really bad. I also hate the subway so much that I've shifted my schedule so that a taxi always makes sense (goto work around 6AM, come home before 4PM).
Now Shanghai is completely different, but Beijing is still way behind.
"lines to even get in the station via BS security"
Yup, at Wudaokou this adds >5 minutes at rush hour.
"Now Shanghai is completely different"
I used to think that, until I started a lot of time in Shanghai. Surprisingly, getting from Hongqiao airport to somewhere in Pudong can be faster by car, even the whole subway journey is on line 2. The difference is not as stark as in Beijing, but it still exists.
Wudaokou is even an extra transfer on line 13. If you can afford it, taxi will save so much time and frustration. Beijing subway is just not well designed or operated compared to taxi and ride sharing services once you reach a certain income level around $2K/month.
So true. "Every time I go in the subway, I die a little bit inside" - a friend of mine used to say this when we lived in Beijing.
Can't remember if I've even been to the Shanghai subway, but the feeling inside in Guangzhou and Shenzhen are like Beijing, but even more foul-smelling. Traffic is also really really bad though, so at least on the subway you know it's going to take an hour instead of the "30 minutes or 3 hours?" estimate you get by car.
Ugh, this was the part I hated most about commuting on the MBTA in Boston. It's not too bad in the winter (cold) or summer (AC is on all the time), but the shoulder seasons, when humidity is high but temperatures are moderate so the AC isn't on, were brutal.
Ya, it often isn't very comfortable. Even our office has this problem, they can never see the bigger picture that humidity is just as bad as temperature for getting work done.
A private car driving from one subway station to another subway station _on the same line_ will generally be slower than a train. But most journeys require a change of lines, and most journeys require walking at either end.
But aside from that, perhaps we're just traveling to/from different places, and hence have a different set of experiences. Here are some specific examples of journeys that are almost always faster for me by car than by public transport.
- Dongzhimen area (5 mins walk from the station) to Financial Street (10 mins walk from Fuchengmen station)
You're comparing the metro and the traffic in Shanghai to that in Beijing. They're not comparable. Beijing is far, far worse on both. A scooter is probably faster for most purposes than either but the metro in Shanghai is amazing, better than Seoul. Beijing is a horrorshow.
Agreed. In Beijing/Shanghai I've always preferred subway to Taxi or ridesharing services, except when it's terribly bad weather and I have to talk over 1km or so, or when I carry tons of luggages.
Regarding the second point: sorry, I wasn't being clear. I think that the pricing probably goes like this:
owning/operating a car > using a rideshare > using a personal scooter > using a personal bicycle.
You have to keep in mind that bicycles, scooters, and other small vehicles unsuitable for ridesharing are very popular in China. Since few people own and operate cars, rideshares don't have a large market to undercut.
My primary reason to get an electric scooter wasn't cost: it was availability. Hailing a taxi is often almost impossible, but a scooter is always ready when you are.
But ridesharing means I almost never have to worry about availability, and now my scooter is gathering dust.
> I would conjecture that China was never a large part of Uber's valuation.
I would conjecture the opposite as Uber investors were pitched on the China growth story
> Four out of the top 10 are now in China, according to an email sent by Uber CEO Travis Kalanick to investors and obtained by the Financial Times.
> In the request for money from investors, Kalanick explained just how fast the company is growing:
> Passengers in China are taking 1 million trips per day.
Uber is in 11 cities in China, but plans to launch in 50 more cities that have a population of more than five million this year. These are all cities comparable to the size of Miami, Kalanick said in the email.
> Four out of Uber's 10 largest cities are in China.
> After nine months in Chengdu, the city is seeing 479 times the number of trips that New York did at the same mark. Hangzhou is 422 times larger than New York at the same nine-month mark and it is adding 200,000 residents a week.
> The company is planning on investing more than $1 billion into UberChina, which goes by YouBu or "an excellent step forward", locally.
> It is now the largest market outside of the U.S., and "at the current growth trajectory, will most likely surpass the US before year-end," Kalanick said int he email.
> Uber's China business was losing money before (I believe to the tune of about $1bn/year)
> I would conjecture that China was never a large part of Uber's valuation
These two statements are not exactly congruent. Investors in later funding rounds would have expected their investment to be used to grow the valuation. In other words, they were funding the losses in China so they should expect a return.... unless they were just investing in Uber due to FOMO.
Ride sharing is a huge deal here. I use it daily, my wife more so, most of the people I know use it. Car ownership is low, but that created even more opportunity here. And it's not like there was a healthy volume of taxi/black car activity before, the apps have just made it way convenient and much nicer.
This will be the biggest market for uber like services, if it isn't already. But it is also way cheaper here, so that changes the dynamics a bit.
Startups are valued by potential so have Uber China's future value be capped at 1/5 of Didi is certainly a downer on its total value - this is the world's largest consumer market. The points you make about the Chinese market look completely off to me.
Apparently without Chinese numbers, it is hard for Uber to further blow up its growth story, according to itself, China has generated more rides than US daily.
It's not a $7 billion "exit". It's an investment for a 20% stake in Didi for $7 billion, which presumably will increase in value as Didi continues to expand in China, especially with less need for ridiculous spending on driver incentives since they will no longer be competing with Uber.
Uber probably had something in the ballpark of 20% market share in China so it sounds like the two decided to simply make peace and become profitable together instead of duking it out for years on end and throwing away billions.
Suppose you spent $1B on a factory to make blenders + blender marketing + distribution channels, etc. Later, you invest $200MM in another blender concern for a 20% stake. How do you value / account for the first $1B in sunk costs?
One of the factors for Rest of the world vs China gap could be the ticket size of a cab ride. A 5km Uber ride in India/China/SE-Asia costs $1.5 on an average, while in developed countries its $15 on an average (10X). So, I guess, it's value over volume for Uber and markets that are on fast-track to profitability.
As always with Uber you have to understand the relative, not absolute, situation.
Uber needs to not just be successful, it needs to be MASSIVELY successful. It's valued at north of $60B! If it makes a bunch of modest deals that are successful to the tune of making a 15% return on investment, and that investment is $2B, then it needs like 20 of those deals to justify its valuation, much less to grow.
At risk of pointing out the obvious, there aren't 20 Chinas. And Uber doesn't have $40B to spend on a series of 20 $2B deals.
Uber's entire existence for at least the last five years has been predicated on being a major global game-changer. Anything that is less than "major global game-changer" for them is a failure.
A general approximation in business is that the non-US market is 5-8x the US market. So if the world market is only 9x the China market, I'd consider that a very big deal.
Yeah - used to (once you've worked out the size of the US market) get a vague feel for the international possibilities. Very rough first-order approximation.
Looks like a good deal to me because continuing to fight Didi in China was a losing proposition. Also they now own 20% of the dominant chinese ride hailing company.
I think this is exactly right. It's a decent face saving move for Uber to have some sort of outcome in an otherwise very very difficult market where they were losing. Seems like the investors in Uber China could have done better to just put the money directly into Didi though. I guess the upside was it got them into the parent company though, which otherwise they may not have had access to.
> Or Uber invested $2bn and walked out with $7bn. Not a bad deal. Plus the value of the combined entity will skyrocket.
Does that $2bn 'investment' figure include the $1bn/year losses they were incurring competing with Didi? Uber ploughed in more than $2bn into China, and got less than $7bn (as sibling comment says, the $7bn is not all going to Uber).
I agree on the second point - the value of whatever percentage Uber owns is likely to go up.
"Investors in Uber China, an entity owned by San Francisco-based Uber, Baidu Inc. and others, will receive a 20 percent stake in Didi, the people said. "
So in future can Didi give challenge to Uber in other markets? or Due to this deal, Didi cannot come to US or other non-China markets and directly compete with Uber?
Jean Liu, the president of Didi, is the daughter of Chinese businessman and Lenovo founder Liu Chuanzhi, and the granddaughter of Liu Gushu, a senior executive banker at the Bank of China.
Hard to compete when the government interferes in favor of your competitor. Many western companies investing or competing in China don't realize how stacked the cards are against them. Either you're left with a very tiny share of the market, or your joint Chinese partners are going to plunder your IP and start undercutting your business.
people dont understand how much this was happening to uber. Police were actively stop uber drivers and fining them for operating as illegal taxi while not stoping any didi kuaidi drivers. In some cities they even had uber banned by the local government with threats of arrest for anyone who drove for uber in the city while allowing didi kuaidi to operate. There has been so much kick back and inside dealing by didi kuaidi that uber never had a chance
CaiFa(财阀) is a word in Chinese too, which I think might be borrowed from Japanese. But for more local version of this word, I would prefer "红顶商人"(red hat businessman), which is from Qing Dynasty, where statesman wears hat with red fur on top, implying the his relationship with government.
The difference between Zaibatsu and Keiretsu is how much the state is involved. After MacArthur's attempt to demolish Zaibatsu completely, they found a way to reorganize with almost no state involvement as Keiretsu. These days, after half of the century, Japanese pretty much recreated all the things MacArthur killed - from Zaibatsu to ultra-nationalism as government ideology [1]
Samsung, Daewoo, Hyundai - pretty much any big Korean firm is Chaebol.
> Asian Americans as a whole are doing better than any other single racial group, earning more on average than whites, and more likely to graduate from college
Back in 2014, Didi and Kuaidi, the other big ride-hailing service in China, had a price war. This forced 20 smaller ride-hailing companies out of business. In 2015, Didi and Kuaidi merged.[1] They managed to escape antitrust review by claiming their revenue was below the $65 million threshold for antitrust reporting in China. With their price war, they were both losing money, so the deal was not subjected to antitrust review by the Ministry of Commerce. Unclear if the Uber deal will get through the same loophole. Anyway, Uber exits from China, with a minor stake in Kuaidi. Now Kuaidi can jack up prices.
Not really. Didi doesn't control the taxi industry, and black cabs have always existed inside of the formal taxi business. This doesn't give them a lot of pricing power, they can't jack very high until people start finding alternatives and competition springs up again.
Well played by Didi. This was a years-long chess game with enormous stakes and Didi came out winning. Make no mistake, Uber's goal was absolutely to dominate in China, if they could. That was a big part of their pitch to investors over the past two years. This deal is an admission of defeat and a retreat from competition, salvaging what value they could in the process.
I would imagine this speaks to mounting pressure on Uber to begin producing real profits. If so, expect many changes in the coming year+ as the company's unit economics (outside its usurious car leases) are clearly still abysmal in almost all markets.
this is bad news for Lyft who Didi basically just abandoned after partnering with them and were hoping that Uber would self implode by overspending in China, Uber has got the US market on lock
Maybe it's bad for Lyft, or maybe it's good. Has it been confirmed that the partnership is void or defunct?
If the partnership remains in place, then this is likely a good thing for Lyft. Recall that, unlike Uber, Lyft wasn't trying to storm China and establish itself as a direct player there. Rather, they established a collaboration with Did whereby each company's customers could benefit from the other company's services in their respective countries. As such, assuming the partnership remains alive, this would mean Lyft has an even stronger partner now in China.
For non-Chinese audience, this is from Didi's official Weibo account:
"滴滴出行宣布收购优步中国，融合资源，促进中国移动出行行业更健康发展。"
"Didi Chuxing announces the acquisition of Uber China, (for) integration of resources and facilitating Chinese mobile transportation business for healthier development."
For people living in Beijing, this is really a bad news.
Didi and Uber China have been in fierce competition for quite a long time, both of them gave consumers HUGE discount. For example, Uber is showing me a promotion which I can go as far as 5 KM around at the cost of just 5 RMB (0.75$).
After merging, I'm afraid we won't see such a low price anymore.
Yeah there is no way they can sustain these prices in the long term.
Here in India, because of the price war between Ola and Uber, you can travel for as low as $0.04/km - cheaper than even the cheapest mode of transport (rickshaws).
Uber finally threw up the white flag in its fight against Didi in China. I wonder how big of a dent this puts in Uber's sheen of invincibility in other markets. Will investors be braver backing other regional competitors like Ola in India and Lyft in the US?
And of course infamously Google and Facebook dominate most of the planet, but can't compete in China (and Baidu can't manage to do much outside of China).
Its even worse than that: Myanmar, Cambodia, Vietnam, ... most of China's neighbors who are just getting into the internet now...are strictly Facebook/Google territory, Chinese internet companies can't even compete in their backyard.
Are u kidding? Those Chinese private companies are not charity. For the countries you mentioned, Myanmar, Cambodia, Vietnam, their market is too small, their population's income is too low, compared with the investment. Why would they care about them?
Meanwhile, did you hear Chinese cellphone, mobile games are so popular in Vietnam and India?
You are probably right. Western companies think long term, not about profit today but profit tomorrow. Chinese software companies don't have that luxury of longer term thinking given the environment they are in.
Do they need to, though? The Chinese market is so unbelievably huge that expanding into these small neighboring countries might not be worth the effort.
Well, why go for a market of 6 billion (people not living in China) when you can go for 1.3 billion (people living in China)? If Facebook becomes popular around the world, and only China and North Korea have locked it out, what does that say about China?
"The deal with Didi Chuxing comes just days after China agreed to provide a legal framework for taxi-ordering apps.
Both Uber and Didi have welcomed the decision, having previously operated in a legal grey area in the country.
While the apps are widely popular, they have undermined business for normal taxis and have been met with protests by cab drivers.
The new rules will take effect on 1 November and will, among other things, forbid such platforms to operate below cost."
New regulation prohibits ride subsidizing. Meaning no way for Uber to increase its market share by subsidizing rides after November 1st.
Is there no antitrust law in China? Surely the optimal solution to two big corporations hemorrhaging money in competition for consumers is not that they stop competing, but rather that they cut costs. Or is such a scenario simply not possible in the dog-eat-dog tech world?
Not when a Chinese company is buying a company from a foreign company. The Chinese government stronger favors Chinese companies, all the more so when they are partially owned and/or well connected to the state. There is no way that this deal could have taken place with roles reversed. (Note: I'm not judging the policy -- just stating it.)
The US economy is 70% larger than China's, it should have far larger companies. The US also has vastly larger multi-nationals, that have between 30 years and a century of lead time in competing for / capturing international markets - once again, it makes perfect sense that the US should have more mega-corps. The US also has a vastly more evolved economy, including an extremely large services segment (which China is currently attempting to clone as their manufacturing continues to contract). As China develops the services side of its economy, you'll see dramatic consolidation in the number of mom & pop shops, leading to large service companies (which is why KFC is so massive in China; if this were 20 or 30 years later, China's service sector would have already produced it domestically at scale).
Exactly, sorry to the parent if that wasn't obvious. When you have state controlled entities (and very large ones in energy, utilities, etc), then the idea of antitrust laws is laughable.
> “Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there. Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers and cities over the long term.”
Hm. This makes me wonder if their strategy for doing that is price fixing. The merger lets them do that legally.
Are there any other serious players in the market in China?
>Jean Liu, the president of Didi, is the daughter of Chinese businessman and Lenovo founder Liu Chuanzhi, and the granddaughter of Liu Gushu, a senior executive banker at the Bank of China.
this deal a long with the entrenched interests almost assure a government sanctioned monopoly.
>The deal with Didi Chuxing comes just days after China agreed to provide a legal framework for taxi-ordering apps. Both Uber and Didi have welcomed the decision, having previously operated in a legal grey area in the country. While the apps are widely popular, they have undermined business for normal taxis and have been met with protests by cab drivers. The new rules will take effect on 1 November and will, among other things, forbid such platforms to operate below cost.
I realize this is a complex deal with many nuances but do elements of all of this not sound a little bit like a ponzi scheme? At least outwardly? Didi which itself has lost billions dollars so far has agreed to invest a billion dollars into another company who has lost billions of dollars. I guess investors are that confident that Uber can not and will not fail?
In order for it to be a ponzi scheme the money being invested in Uber would need to be used to directly pay off previous investors. That is not happening. Investing in Uber may or may not turn out to be a good investment, but it's not a Ponzi scheme.
Seems like a risky move. My understanding is that China doesn't have the same level of minority shareholder protections as Delaware. I suppose it's better than bleeding for the next 10 years and ultimately losing the market, though.
This is pure monopoly play - I hope Lyft continues to compete and do not merge ... I hate to be in world where no taxi service exists and I am at the mercy of random surge pricing...
Uber was never going to win as a foreign tech company in China. Good thing they are doing this, at least they get a piece of the pie the only way you can in China - as an investor.
The Didi/Lyft collaborative service doesn't work in China. Didi customers can visit the US and order Lyft rides. But Lyft customers visiting China cannot use the Lyft app to order Didi rides.
So much for "disruption" in startup ideology, but I guess it is China that starts bring them back to reality. This is China, nothing is fair even you optimistically believe it to be.
I'm not sure what's the fantasy on China. I'd personally prefer winning the 6b population markets over the 1.3b.
Sure, it takes time, but in a long run it is more sustainable. But obviously in a startup world, a sustainable business without the hyper-growth is not much valued.
It is interesting to note the Apple investment in Didi just a few months back. Did that in any way play a role in this merger? I think this is a good outcome given the consideration that Uber, an american company cannot own something as fundamental as transportation in China. The government plays too much of a role to let Uber or for that matter any other foreign company. Listen to Trump on this one!
How did Uber get 17.7% of Didi (88% of Uber China shares) if they didn't own more than 50% of Uber China to begin with?
Also, it was reported that Uber got 17% of economic interest, but only 5.89% of full equity? I assume the rest of the 17% was non-voting shares?
If you can't beat 'em, join 'em. I think uber's playbook of encouraging local activism to overcome govt and incumbent resistant wouldn't work there. Converting Didi into a partner is a big win for them.
Next up, gobbling up Lyft. Looks like they really want to be the monopoly at IPO time. At this rate, they'll probably IPO at more than $100 billion. Sigh, should've interviewed with them last year, haha
It's not much of a defeat. They get billions of dollars from a market they were never going to be allowed to dominate to begin with. The only outcome from day one for Uber was being forced out of China, no different than the problems Amazon / Google / Facebook / eBay have all run into in being prevented from competing normally in that market as they do in the rest of the world.
It's extremely unlikely that they'll IPO for anywhere near $100 billion, or even near their current valuation (for reference, the largest IPO in history is Alibaba with $25B). Their accounting practices most likely don't utilize GAAP, which is how they get around saying "we're profitable in the US", so I wouldn't be surprised if they were actually significantly losing money. Plus with the multitude of lawsuits against them right now, it's not hard to imagine they lose a good chunk of their valuation in the near future if the lawsuits don't really favor them.
They may IPO (if they are indeed profitable and don't want to keep looking for Series N style fundraising), although I doubt it, and if they did, it's definitely unlikely to be anywhere near $100 billion.
Although I was more focused on the IPO terminology, I still think my argument holds true that I don't believe that Uber would have a favorable IPO and that it's unlikely their current/future valuation would translate to market cap, because they're very likely not honestly profitable in their larger markets (e.g. US) because there's no proof they're going by their GAAP numbers when saying they're profitable in the US.
I would love to see documents like SEC filings from Uber, but they won't release those except to investors until they IPO, so it's a catch-22...
Different metrics. Alibaba raised $25B. Facebook's market cap was around $104B (intraday) upon their IPO, but they only raised about $16B in the offering.
Depends, at least they'll be viable entities, rather than ones which were unsustainable (a money losing operation does not stay in business for the long term).
It is because Uber didn't cut a deal with Sydney Airport. Happens in a lot of airports here in USA where Uber doesn't work. But once you're outside airport boundary you can get an Uber.
I really hope China adopts some kind of anti-trust regulation sometime soon. This trend of all competitors merging until only one monopolist is left standing, can't be good for their consumers, nor the economy.
heh! This is the result of the new policy Chinese government put in place that prohibits ride sharing companies from subsidizing rides to gain market share. It pretty much forced Uber to get out of China! I don't think Chinese government care about anti-trust as long as the monopoly company is from the gang that runs the country.
However, if Uber's China business is worth only $7 billion, and their current valuation is $68 billion, does that mean the rest of the world is worth 9x China, even though China is one of their largest and highest potential market? Suddenly the valuation of Uber's business outside China looks very inflated (even more than before). Doesn't it?