Pando

Didi surpassed Uber in rides more than a year ago. Is it about to surpass Uber in valuation?

By Sarah Lacy , written on April 26, 2017

From The Travis Shrugged Desk

It’s happening.

Just as we’ve long predicted, Didi Chuxing is poised not only to become the largest ridesharing company in the world in terms of volume of rides, but it getting close to becoming the largest ridesharing company in the world in terms of valuation as well.

According to Bloomberg (and a slew of others nodding in agreement) Didi is close to raising at least $5 billion in funding, which would value the company at some $50 billion, post-money.

That’s a significant milestone because The Information reported yesterday that some Uber shares were sold in a secondary transaction and the valuation had fallen from near $70 billion to some $50 billion, as its scandal ridden 2017 continues.

Let’s pause for a moment to acknowledge what the Uber apologists will say: SECONDARY TRANSACTIONS ARE A MEANINGLESS DATA POINT BECAUSE THERE IS SO LITTLE SELLING OF UBER SECONDARY SHARES IT CAN’T BE JUDGED AS TRUE MARKET VALUE!

Yes, it is not the same as how you would judge the market cap of a publicly traded stock where there’s more liquidity. And it’s not quite the same as how you would judge a venture capital valuation, where it’s as much about aspiration and growth potential than current “worth.”

But that doesn’t mean it’s a meaningless data point. People argued the same about secondary shares in Facebook before it went public, only they were arguing that unsophisticated secondary buyers were bidding the company up with imperfect information. That didn’t really turn out to be the case. And one could argue, with Uber generally having more restrictions on secondary stock sales than a lot of other companies, the valuation should be artificially higher out of scarcity.

Put another way: If a secondary stock sale isn’t an indication of market value, well then neither is a one-off investment by the Saudi Government. Both are a single data point-- both likely based on imperfect information. It’s disingenuous to obsess over one but totally ignore the implications of the other with the strawman argument of “they aren’t the same.”  

Don’t think the news hitting back-to-back and that magic $50 billion number is an accident on Didi’s part. While Uber and Didi are technically partners and share an investment in one another, the two are far from allies. Didi paid what it needed to in order to be able to get a monopoly in China, and Uber lept at the chance to stop burning billions per year on a market it would never win, while still getting valuable shares in the monopoly ridesharing company in the largest market on earth.

Do not confuse that with the idea that these two companies are done competing. For one thing, Didi continues to fund Uber rivals in markets like South East Asia and Brazil. I fully expect Didi to acquire Grab one day, and wouldn’t rule out Didi eventually buying Lyft. (Didi is an investor in Lyft, and the two share other investors as well.)

But for now, Didi is winning the war of momentum and investor enthusiasm, and given the huge costs required to build these networks and that most of that capital has been raised internationally, that has a direct impact on Uber. It would certainly have an impact on Uber’s desire to go public.

And I don’t have to tell you, this comes at a particularly bad time for Uber. The latest scandals-- broken by the New York Times-- involve Travis Kalanick being called on the carpet by Apple for breaking its terms of service, engaging in spying on Lyft riders’ data, and more things that no one paying attention to Uber should really be shocked about. Meantime, a judge has ruled that Anthony Levandowski cannot use the Fifth Amendment to shield Uber from handing over documents in the upcoming Uber Waymo trial.

There’s still no repercussions out of that whole “investigation” into Uber’s “toxic culture,” and a heartbreaking story in the San Francisco Chronicle highlighted the stress and alleged racism experienced by an African American engineer who committed suicide. His widow and family blame Uber. The most Uber has been able to muster to change the conversation is a bullshit vaporware announcement about its progress in flying cars, which no one is really buying.

If you are a global investor and you could own shares in Didi or Uber right now, which would you pick? The one showing momentum in the largest economy in the world, with investments in every other major global market, or the one that has admitted it has a toxic culture, keeps losing executives, and may have stolen secrets from Google? Because if both reports are true, they’re pretty much at the same price. Momentum is what matters in startups: Didi’s valuation has jumped nearly $15 billion, while Uber’s has fallen by almost the same amount. Again, that isn’t an accident.

I’ve said it for a long time, and I’ll say it again now: When it’s all said and done, Didi is going to be the largest ridesharing company in the world, and may be the only super unicorn out of the crop. They have the stronger local market, based on the density of Chinese cities, the number of them, and the transportation challenges the country has. It has had regulatory challenges, but it also has time because it has no competition in China, loads of capital, and powerful allies in Tencent, Alibaba, and some divisions of the government on its cap table. It’s arguably executed better than any other ridesharing company in the world, to wit, it’s the only one to resoundingly beat Uber.

And unlike Uber, Didi isn’t its own worst enemy.  

This is when the Uber apologists will note that: Hey! A surging Did is good for Uber too! Indeed Uber owns a large chunk of the company. But if you think a guy like Kalanick is thrilled at the idea of living out a redux of Yahoo and Alibaba, you still don’t get what drives this guy.