DiDi Stock Vs Uber: Which Is Best?

Authorities in Beijing continue their crackdown on home nation companies listing abroad, with the ride-hailing app DiDi the latest to come under scrutiny from the Chinese government. DiDi Global’s shares dropped precipitously, losing more than 30% of its value after the market reacted to the negative news. 

Having launched its IPO in Q2, these developments couldn’t have come at a worse time for DiDi. Once seen as an Asian rival to Uber, its future has been thrown into disarray. So, what awaits this ambitious ride-sharing company – and will it ever match its illustrious north-American counterpart?

Is DiDi The Uber of China?

Whilst most comparisons with Uber are usually overblown, there’s little doubt that DiDi Global Inc. (DIDI) has the potential to challenge the hegemony of the large, well-known ride-hailing apps currently dominating the U.S. market.

Indeed, DiDi already bought out Uber’s business interest in China in a 2016 deal that saw the American company get an 18.8% stake of the Chinese firm, amounting to what was then worth a $5.97 billion slice of DiDi’s operation.

But Uber’s ceding of the China market to DiDi was a strategic retreat, and the deal it negotiated was seen as a big plus for the San Francisco-based outfit.

After DiDi’s share float on June 30, Uber will retain 12% of DiDi’s stock, meaning it still gets to benefit significantly from any success that DiDi enjoys in the interim, yet still has the option to go head-to-head with DiDi if market conditions make it workable.

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Is DiDi Stock Worth Buying?

With the current political and regulatory climate in China at the moment, it’s a hard sell to make the case that DiDi is a buy given the uncertainty surrounding the company right now. However, price reversals are common when headwinds are binary affairs, and it’s by no means certain that DiDi will be punished by Chinese apparatchiks if the firm toes the party line.

So, overlooking its present woes, where would investors find value in DiDi’s business to make it look like an attractive stock?

Well, firstly, the company isn’t just the largest ride-hailing brand in China – it’s the largest of its kind in the world. DiDi serves 493 million users in 17 different countries, facilitates 41 million average daily transactions, and is, according to China Insights Industry Consultancy Limited, the globe’s largest mobile technology platform.

Moreover, DiDi commanded a market share of 13.5% of the global taxi market in 2020, while Uber and Lyft trailed considerably with just 6.8% and 1.8%, respectively.

Furthermore, DiDi trades at an enticingly low forward Price-to-Sales ratio of just 1.93, and its gross profits grew from $549.6 million in 2018 to $1,718.2 million in 2020.

The Uber of China Lost 3x More Than Prior Year

Not wanting to deflate the bullish thesis too soon, there are a series of potential pitfalls threatening DiDi that investors should be wary of. Straight off the bat: DiDi still makes most of its revenue from its China operations, with 94.3% of its cash coming from its China Mobility segment and only 4.1% and 1.6% coming from its Other Initiatives and International business wings. The argument that it’s the world’s largest ride-sharing and ride-hailing service may be a little premature on this basis.

Next, despite growing its gross profits, the company isn’t really profitable by any other meaningful measure. For instance, DiDi’s Trailing Twelve Month EBITDA comes in at a loss of $1,741.9 million – more than three times its loss in 2019.

In fact, it should be mentioned that DiDi had a very bad pandemic, dropping both revenues and earnings over the course of the coronavirus crisis.

How Uber Beats DiDi

The rest of this year will be critical for Uber’s future.

The bearish voices are rising in crescendo, claiming the company will always be a loss-making venture, with competition among various players in the ride-hailing space eroding what little profit margins they can each extract.

But this pessimism is unfounded; the company’s mobility business is nearing pre-pandemic levels again, with elevated delivery bookings taking the delivery segment close to profitability. 

And the firm reported a great first quarter – which the market punished with a 5% post-earnings drop! Sure, profits were still negative – but they were up $95 million quarter-on-quarter and $253 million year-on-year. Management is optimistic about the business’s prospects too, with CEO Dara Khosrowshahi confident that the company is firing “on all cylinders” again. 

Indeed, Uber expects to turn profitable for the first time in its history sometime in 2021. And this is where it beats DiDi hands down – if it manages this pivot to profitability, the boost in investor sentiment could see its market value skyrocket.

Pros and Cons of DiDi Vs Uber

Both Uber and DiDi are trading way below their respective yearly highs right now, and could be seen as cheap on just this superficial level of analysis.

But Uber’s price-to-Sales multiple of 5.69 makes DiDi a better value play at the moment; and, although Uber’s revenues are expected to grow by 16.53% this year, DiDi has already clocked up year-on-year revenue growth of 107% in the first quarter of 2021. 

Uber Vs DiDi Stock: The Bottom Line

There’s not much in the way of an economic moat when it comes to the ride-hailing business, and given that the total addressable market for “mobility” is predicted to be $6.7 trillion – according to DiDi’s recent FORM F-1 filing – there’s likely to be a scrap to the death for dominance in this industry.

For the time being, DiDi and Uber are the pre-eminent taxi app brands currently operating on their own home turf. But with DiDi’s move into the north-America market, these two monoliths are likely to come into conflict.

Uber’s possible shift to profitability this year makes the U.S. company the safest bet at the moment – but if DiDi falls into the good books of the Chinese government, this might not be the case forever.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.