Caixin
Apr 27, 2017 07:05 PM
BUSINESS & TECH

Didi Nears Close of $5 Billion Funding Round

(Beijing) — Dominant car services provider Didi Chuxing's value is likely to enter a new growth phase with its latest valuation, following big industry changes that include elimination of its chief competitor and heightened sector oversight.

China’s largest ride-hailing app is approaching the close of a $5 billion funding round that could lift the startup’s value to $50 billion, according to reports from Bloomberg on Wednesday.

However, analysts believe the company may need to explain the legitimacy of a 50% upswing in financial worth even as its market shrinks, as crushing regulations may potentially downsize the industry by more than 80%. Foxconn’s investment in September pegged Didi’s value at $34 billion.

“Logically speaking, the company would have difficulty convincing investors of an added $16 billion in value, especially as growth stalls,” says Ge Jia, a Beijing-based tech blogger, who believes a $50 billion tag, which would make Didi the most valuable tech startup in China, seems inflated.

First-tier cities rolled out stringent regulations that outlawed more than nine out of every 10 of the 610,000 Didi drivers in two of China’s busiest cities. The changes led many to fear a devastating blow to the previous $34 billion valuation, largely propped up by the sheer volume of rides.

The number of users of Didi’s services each month has shrunk by more than 15% since December, when the tougher regulations came into force, according to app tracking figures by consultancy Analysys.

“As the policies begin to manifest through slackening user activity, and ultimately sliding revenues, this 50% boost looks like wishful thinking,” said Ge.

The Beijing-based company has been shifting focus to artificial intelligence (AI), overseas expansion, and making its own bets on startups. Didi recently set up its first AI lab in Silicon Valley, made investments into Brazilian Uber rival 99, and fueled bike-sharing firm Ofo with an investment of tens of millions of dollars, even including bike-sharing services on its app starting Thursday.

“This pivoting to other businesses is an attempt to keep its value afloat to ride out a present lackluster phase in the ride-hailing business,” said Fang Xingdong, founder of tech website blogchina.com.

“They struggle to keep up the narrative, as an IPO seems distant, and some investors may buy their futuristic vision,” said China E-Commerce Association Director Cao Lei, who added that the $50 billion figure appeared bloated.

Analysts say it’s possible that the new valuation is partially based on stake transfers. “This is an exceptional cash-out opportunity for earlier investors,” said Ge. “Venture capital funds are less established and jittery toward policy changes that could see them replaced by sovereign wealth funds,” he said, as the state-backed funds are better placed to foresee policy changes.

Investors have been making extremely discreet moves to cash out of Didi, said Ken Xu, an executive at Gobi Partners, adding that investors and the company are all extremely cautious of leaking trade transfers, sending out a “sell” signal.

Didi is not alone in facing challenges in buffering a colossal valuation. Its former rival Uber, whose China operations were acquired in August, is also suffering from loss of investor interest, California-based tech website The Information reported on Tuesday. Prices of the company’s private shares have slipped by about 15% according to brokers, which may bump down the company’s $60 billion valuation to $50 billion, setting its growth back by more than a year.

Contact reporter April Ma (fangjingma@caixin.com)

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