On June 20th, DiDi Chuxing, which focuses on the digital transformation of ride-hailing and taxi, officially launched its IPO. In this IPO, DiDi Chuxing plans to issue 39,091,000 new shares, accounting for approximately 4% of the total share capital after issuance, with a maximum issue price of not more than HKD 7.0 per share.

China International Capital Corporation, Haitong Securities, and Nomura Securities are joint sponsors. This means that China's first share of shared travel will soon officially land on the Hong Kong Stock Exchange.

According to the prospectus, DiDi Chuxing will continue to focus on its main business in the future, to further consolidate its market position and enhance its brand influence in the carpooling industry; continue to expand its smart taxi services, promote the digital transformation of the taxi industry; enhance its monetization capabilities and enrich its monetization channels; improve its technological capabilities and operational efficiency, especially investing in AI and machine learning technologies, while promoting user experience and upgrading safety mechanisms; in addition, it will make more strategic alliances, invest in and explore acquisitions in terms of capital.

In 2023, DiDi Chuxing's total revenue, gross profit, adjusted net profit, and net cash flow are expected to be RMB 820 million, RMB 610 million, RMB 230 million, and RMB 230 million, respectively, representing a year-on-year growth of 43.2%, 41.6%, 166.3%, and 114.4%, respectively.

In 2021, 2022 and 2023, DiDi Chuxing's adjusted net profit margin (measured under non-international financial reporting standards) was 30.5%, 14.9% and 27.7%, respectively, and its gross profit margin was 80.9%, 75.1% and 74.3%, respectively. This means that DiDi Chuxing, which achieved its first profit in 2019, has been profitable for five consecutive years, and has maintained high net profit margin, high gross profit margin, and high net cash flow, fully demonstrating its sustainable profitability through the cycle.

As of December 31, 2023, DiDi Chuxing offers ride-hailing services based on its app in 366 cities in China. In 2023, the number of rides and transaction volume of DiDi carpooling will increase significantly by 38.3% and 41% year-on-year, respectively. Specifically, in 2021, 2022 and 2023, DiDi carpooling facilitated approximately 12.97 million, 9.42 million, and 13.03 million rides, with transaction volumes of approximately RMB 7.8 billion, RMB 6.1 billion, and RMB 8.6 billion, respectively.

From the prospectus, it can be seen that DiDi Chuxing's business scale growth, profitability, cash flow, and cash reserves are all in a good state. This is not only due to its leading light-asset business model and healthy unit economic model, which enables the company to achieve sustained and steady growth, but also due to DiDi's green travel concept of using existing capacity to create passenger transport efficiency by not adding additional vehicles, not increasing traffic congestion and carbon emissions, which is more in line with the trend of sustainable development and is supported by the government and favored by users.

First, it has sustainable profitability. Net cash flow is expected to increase by 114.4% in 2023 compared to the previous year.

According to the prospectus, in 2023, DiDi Chuxing's total transaction volume will be approximately RMB 9 billion. In addition, in 2021, 2022 and 2023, DiDi Chuxing's total revenue will be RMB 780 million, RMB 570 million and RMB 820 million, respectively, with a year-on-year growth of 43.2% in 2023.

In 2023, DiDi Chuxing's net profit will reach RMB 230 million, a year-on-year increase of 166.3% from 2022; gross profit will reach RMB 610 million, a year-on-year increase of 41.6%.

Second, there is sustained positive cash flow, and the business model has resilience.

In addition, in 2021, 2022 and 2023, DiDi Chuxing's net cash flow from operating activities was RMB 140 million, RMB 110 million and RMB 230 million, respectively, with a year-on-year increase of 114.4% in 2023. 2022 was the most difficult year for the transportation industry, with many cities under static management. Nevertheless, DiDi Chuxing withstood extreme pressure testing and still generated RMB 110 million in operating cash flow in 2022, fully demonstrating the resilience of its DiDi ride-hailing platform business. At the end of 2023, DiDi had cash and cash equivalents of RMB 1.42 billion.

Behind the sustained positive cash flow is DiDi Chuxing's steady business model, which has achieved sustainable high gross profit and net profit capabilities through the cycle. In 2023, DiDi Chuxing's gross profit margin and adjusted net profit margin will reach 74.3% and 27.7%, respectively.

As a pure information service platform, DiDi Chuxing does not own or lease fleet vehicles, nor does it incur any expenses related to owning vehicle assets. In addition, because carpooling involves the sharing of travel costs between vehicle owners and passengers, which is a mutually beneficial and efficient travel mode, the platform does not need to pay a large amount of subsidies to promote orders, unlike ride-hailing services.

As a pure information service platform, DiDi does not own or lease any fleet vehicles, nor does it need to bear any expenses related to holding vehicle assets. At the same time, because ride-sharing costs are shared between car owners and passengers, resulting in a mutually beneficial travel model, the platform does not need to pay a large amount of subsidies to promote orders as compared to online car-hailing services.

According to the Frost & Sullivan (F&S) report, in 2021, 2022, and 2023, the total amount of subsidies and rewards for car owners and passengers of Didi Chuxing only accounted for 1.8%, 1.9%, and 1.8% of the total transactions on the platform, which is much lower than the average level of 16.7% paid to drivers and passengers in the ride-hailing industry.

From 2021 to 2023, Didi's sales and operating expenses decreased year by year, due to the improvement of the promotion evaluation mechanism, which improves the efficiency of marketing activities.

Over the past decade, this light-asset business model has enabled Dida to rapidly expand its business scale at minimal incremental costs, promote business scalability, while maintaining profitability, achieving higher unit economics and operational leverage than other ride-hailing platforms, and enhancing corporate resilience.

4. Leading unit economics model creates stable business mode. Although ride-sharing and ride-hailing platforms share many similarities from the user experience perspective, the service providers on both platforms are completely different: the drivers are either casual drivers or professional drivers. Therefore, their business models are fundamentally different, and the unit economic indicators also show significant differences. The unit economics model of ride-sharing is superior.

Although from the perspective of user experience, ride-sharing platforms and online car-hailing platforms have many similarities, the service providers on the two platforms are completely different: one is car owners who share rides on the way, and the other is professional drivers, so there are fundamental differences in the business model, and there are obvious differences in unit economic indicators, with the carpooling unit economic model being better.

In addition, since the ride-sharing platform does not need to pay large subsidies and rewards, even though the ride-sharing fee and service fee rate are much lower than those of the ride-hailing platform, the ride-sharing platform can still maintain a high level of profitability.

According to the prospectus, the average service fee rate of major ride-sharing platforms is about 9.8% in 2023, while the average service fee rate of major ride-hailing platforms is about 27.1%.

The average car owner rewards of major ride-sharing platforms account for about 1.2% (as a percentage of the total transaction amount) and about 12.2% (as a percentage of revenue), respectively, while the average driver rewards of major ride-hailing platforms account for about 8.0% and 30.1%, respectively.

In addition, since the service fee rate of the ride-sharing platform is much lower than that of the ride-hailing platform, ride-sharing drivers can get a higher commission rate. The average commission rate of the ride-sharing industry is 89.5%, which is much higher than the average commission rate of the ride-hailing industry, which is 70.3%. Among them, the commission rate for Didi ride-sharing drivers is the highest, reaching 89.7%.

5. Bilateral user growth drives huge network effects. The answer rate and monthly active users increase significantly year-on-year. Unlike ride-hailing, both ride-sharing drivers and passengers have a spontaneous demand for ride-sharing based on the goal of saving travel costs. The increase of ride-sharing drivers and passengers on the platform will bring about continuous improvement in matching efficiency, which will attract more passengers and drivers to use the platform, thereby forming a huge network effect.

As the number of ride-sharing drivers on the platform continues to grow, the platform can attract more passengers to spend less time waiting and enjoying higher answer rates, and complete trips in a larger area. The increase in passengers improves the utilization rate of the available capacity of the platform, thereby attracting more drivers to post itineraries or orders, which in turn promotes continuous improvement in the answer rate of ride-sharing. According to the Frost & Sullivan report, in 2021, 2022, and 2023, the answer rates of Didi ride-sharing were 56.4%, 58.8%, and 66.5%, respectively, which were higher than the industry average of about 50% to 55%.

In addition, in 2023, the monthly active certified ride-sharing drivers and ride-sharing passengers of Didi ride-sharing increased by 33.3% and 29.7% year-on-year, respectively.

6. Big data and AI together empower technology-driven growth. R&D expenses increased by 36.7% YoY in 2023. In 2023, the gross profit of Didi Chuxing increased by 41.6% YoY, while the gross margin decreased slightly from 75.1% in 2022 to 74.3% in 2023. Mainly because the enhancement of technical infrastructure and security measures led to an increase in operating and maintenance service fees, insurance costs, and the increase in service fees paid to aggregation platforms.

In 2023, Didi Chuxing launched eight new R&D projects, mainly involving AI algorithm design, sales and marketing management, big data technology, POI search and route planning.

In recent years, Didi Chuxing has invested a large amount of resources in proprietary technology (especially in the fields of artificial intelligence, machine learning, and big data analysis) to improve the user experience and ensure sustainable platform growth. By accelerating the application of AI, advanced algorithms, cloud technology, and navigation capabilities, Didi has effectively solved many pain points that have long hindered the efficiency improvement of ride sharing, optimize the nearest pick-up and drop-off points, and minimize waiting time and travel distance. In terms of matching and dispatching, over 68,000 demand pairs are generated every minute during peak hours.

In addition, Didi's R&D expenses have increased year by year in recent years, with a year-on-year increase of 36.7% in 2023. As of December 31, 2023, Didi's R&D team accounted for approximately 52.0% of the total number of employees.

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In 2023, Didi Chuxing launched eight new R&D projects, mainly involving the design of AI algorithms, sales and marketing management, big data technology, map information point ("POI") search and route planning.

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VII. The compound annual growth rate of carpooling in the next five years is 29.4%, and the market share of auto passenger transport is expected to increase to 8.4% by 2028.

According to F&S reports, due to macroeconomic improvements, urbanization, continuous growth in the number of private cars and more ride-sharing bullish policies launched, the ride-sharing market will become the fastest-growing segment market in China's automotive passenger transport market. The total transaction volume is expected to increase from RMB 37.1 billion in 2024 to RMB 103.9 billion in 2028, with a compound annual growth rate from 2024 to 2028 of 29.4%. Meanwhile, the ride-sharing penetration rate measured by travel distance is expected to rise from 0.36% in 2024 to 0.80% in 2028. In addition, the proportion of ride-sharing in China's automotive passenger transport market will increase from 4.4% in 2023 to 8.4% in 2028.

For ride-sharing platforms, maintaining a large user base is crucial to ensure effective response speed and good user experience, thus expanding business scale and achieving strong financial performance. According to the ride-sharing frequency in 2023, the top three market participants' market share is 97.6%. According to the total transaction volume in 2023 and the annual ride-sharing frequency, Didi is ranked second in the Chinese ride-sharing market, accounting for 31.8% and 31% respectively.

Combining business travel with ride-sharing will empower sustainable transportation and enable the creation of 54.6 million private car seat capacities. Travel demand naturally has peaks and valleys. Peak demand before and after weekends, holidays and morning and evening periods are difficult to meet with business travel alone. Even if it is met, it will cause idle waste of capacity during non-peak periods. During peak demand periods, the ride-sharing vehicle group coincidentally also needs to travel, which is the strongest period of ride-sharing capacity. Therefore, ride-sharing has natural capacity elasticity to match the travel demand peaks and valleys.

According to the F&S report, the overall size of the taxi market is expected to increase to RMB 48.8 billion by 2028, with a compound annual growth rate of 7.3%. The compound annual growth rates for taxi ride-hailing and taxi ride-sharing are expected to be 19% and 5% respectively.

According to the F&S report, relying solely on the taxi and online car-hailing services under the commercial travel model cannot fully meet the travel demand. Considering the imbalance between demand and commercial supply during peak and non-peak hours, combining commercial travel and mutual assistance travel modes can improve the overall transportation efficiency and efficiency.

F&S predicts that the taxi ride-sharing model still has advantages in several usage scenarios, such as peak efficiency compared with the taxi ride-hailing model. Therefore, combining taxis with ride-hailing can improve the efficiency and flexibility of China's automotive passenger transport market. In the future, taxi ride-hailing and ride-sharing will continue to develop in parallel to meet the diverse travel needs of the public.

According to the F&S report, taxis still have the largest market share in China's automotive passenger transport market, accounting for approximately 54.2% in 2023, but the digitization of taxis is low. In the total transaction volume of taxis in 2023, the proportion of taxi ride-hailing is as high as 88.9%. At present, the digital transformation of China's taxi industry is still in its initial stage, and there is still much room for improvement in the efficiency of the ride-hailing model.

F&S reports believe that China's taxi industry will continue to benefit from the continuous and accelerated digital transformation process in many ways in the future, including better user experience, upgraded industry service standards, increased fleet utilization and optimized management of taxi companies and associations.

As a professional solution service provider for digital transformation and upgrading of taxis, Didi has been helping with the digital transformation and upgrading of the traditional taxi industry since 2017. In 2019, we launched the 'Taxi-New Transport' strategy to assist in the digital transformation and upgrading of the taxi industry in terms of passenger experience, driver services, operational efficiency, and industry supervision. Starting with ride-sharing, we are rebuilding the transaction and user experience and eventually creating a new way of mobile travel through the integration of ride-sharing and ride-hailing with the smart taxi system, taxi assistant and Phoenix cloud platform.

Now and in the future, we will continue to promote the digital transformation of the taxi industry, explore the potential for growth in the travel market.

According to the F&S report, the number of taxi passengers affected by taxi ride sharing and ride hailing has reached 2.6 billion in 2023, occupying 45.8% of the total number of taxi passengers, and it is expected to continue to grow. The expansion of taxi ride-sharing's market share will increase from 3.2% in 2023 to 7% in 2028, with a compound annual growth rate of 17.4%.

The transition of the taxi industry towards ride-sharing is irreversible, and the 'New Taxi' strategy will continue to guide the digitization and transformation of the taxi industry.

The number of taxi passengers affected by ride-sharing and ride-hailing has reached 2.6 billion in 2023, accounting for 45.8% of the total number of taxi passengers, and it is expected to continue to grow. The expansion of the ride-sharing market share for taxis will increase from 3.2% in 2023 to 7% in 2028, with a compound annual growth rate of 17.4%.

Didi will continue to invest in innovative technology, safety management, and diversified travel services to create a more sustainable ecosystem of digital transportation.

By the end of December 31, 2023, Didi's taxi-hailing and ride-sharing services have covered 91 cities nationwide, reaching strategic cooperation with 79 cities. Prior to the last feasible date, Didi has entered into a comprehensive smart taxi cooperation with the local transportation departments and taxi associations in 17 cities, providing taxi cloud platform services for 916 taxi companies in 73 cities. Since the launch of the smart taxi system and until December 31, 2023, the cumulative number of passenger evaluations has reached about 1.05 million times, with an average of more than 1,500 evaluations per taxi driver. In the future, Didi will continue to promote the digital transformation of the taxi industry, explore the potential of the travel market growth, and empower more taxi drivers and passengers with technology.

As of December 31, 2023, Didi has assisted in creating 54.6 million unused car seat capacities, equivalent to approximately 4.5% of the total number of small private car seats in China with light asset business models. This can help improve the utilization rate of existing vehicles to reduce per capita travel carbon emissions, thus assisting in alleviating traffic congestion and carbon reduction.

In 2021, 2022, and 2023, Didi's ride-sharing platform services have helped to reduce approximately 1.2 million, 0.9 million, and 1.3 million tons of carbon dioxide emissions respectively. The amount of carbon emissions reduced in 2023 is equivalent to planting approximately 1.6 million acres of forest.