Hubert Horan: Can Uber Ever Deliver? Part Twenty-Five: Didi’s IPO Illustrates Why Uber’s Business Model Was Always Hopeless

Yves here. Uber is serving to demonstrate how long misguided financial backing can keep a fundamentally and hopelessly unprofitable, cash flow negative business going. Another example has been most US shale gas plays, but their money spigot is finally running dry.

By Hubert Horan, who has 40 years of experience in the management and regulation of transportation companies (primarily airlines). Horan has no financial links with any urban car service industry competitors, investors or regulators, or any firms that work on behalf of industry participants

Programming Note: On August 4th Uber plans to announce its second quarter 2021 earnings, and the forthcoming Part 26 of this series will summarize those results and the current state of Uber’s economics.

One of the central arguments in this series is that Uber’s business model and the economics of “ridesharing” were always completely hopeless. There was no way to produce the ongoing, sustainable profits from urban car services needed to justify tens of billions in investments from capital markets. None of the massive corporate valuations Uber or any of the other ridesharing companies have achieved have anything to do with technological or efficiency breakthroughs or powerful network/scale economies that created major marketplace competitive advantages or sustainable consumer benefits.

On June 30th, Didi Chuxing, the “Uber of China” went public for the first time (as Didi Global), issuing 316 million American Depositary Shares that are now traded on the New York Stock Exchange, but these shares quickly lost over half their original value after the Chinese government announced moves to rein in its tech industry.

This Part 25 post will focus on how the financial results reported in Didi’s IPO prospectus. They confirm our previous findings about the terrible economics of ridesharing. This post will also discuss how the growth and survival of the ridesharing industry has been the direct result of national economic policies towards the tech industry. Beijing’s recent announcements represent an explicit rejection of a move to a US policy approach that the Chinese tech industry had been aggressively pushing for.

The Didi and Uber Business Models Are Virtually Identical

Didi Chuxing illustrates an ideal execution of the Uber business model. That model started with raising a massive cash war chest from investors and using it to subsidize extremely rapid growth in customer volume and market share. Uber had long claimed that it would inevitably achieve global dominance because its ridesharing business model was so powerful that it could easily overwhelm competitors in any market it entered. But Didi adopted an extremely aggressive version of Uber’s massively funded subsidies approach and forced Uber to abandon China in humiliating fashion. [1]

Didi thus achieved the impregnable home market position that Uber had hoped for but never achieved and has had a market share over 92% for the last five years. Like Uber, Didi’s believed the combination of home market dominance and the network power of its “platform” would allow it to easily enter a wide range of other markets beyond ridesharing.

Didi also enjoyed several other advantages. Chinese cities are much more attractive to car service operators because of their much higher density of demand and low car ownership rates. This supports higher revenue and utilization rates than US operators can achieve.

The impacts of Covid-19 were also much smaller in China. Didi’s ridesharing revenue only declined 8% in 2020, while Uber’s declined 43%. Unlike Uber, Didi did not have to deal with the long-established local regulatory regimes and did not suffer from any major, self-inflicted governance or “cultural” crises. [2]

Didi’s IPO Prospectus Claims Cannot Hide That a Business That Cannot Make Money With a Market Share of 90+% Is Not a Viable Business

But despite enjoying much more favorable conditions than Uber, Didi remains unable to generate operating profits.

The prospectus for its June IPO reported GAAP net losses of $2.3 billion in 2018, $1.5 billion in 2019 and $1.6 billion in 2020. [3] Thanks to those favorable conditions Didi’s operating margins have not been as bad as Uber or Lyft’s, but it has clearly is not demonstrating any of the steady margin improvements needed to eventually “grow into profitability.” Prior market growth depended on massive subsidies. Even with the complete absence of competition it cannot charge customers the full cost of its service, and core market growth was plateauing prior to the pandemic.

Didi’s IPO prospectus emphasized how international and non-ridesharing markets would drive long term growth, just as Uber’s IPO prospectus had. But the data in the prospectus shows Didi has not been able to use its powerful home market position as a springboard to international growth—only 2% of its revenue is earned outside China. Nor has its ubiquitous app “platform” led to profitable expansion into other businesses. [4]. Didi was unable to expand from ridesharing into food delivery because the Chinese market was already controlled by companies owned by Alibaba and Tencent.

Didi’s IPO prospectus, like Uber, did not hesitate to use indefensible accounting data.  It emphasized “adjusted EBITDA” over GAAP profitability, allowing it to hide a half-billion in compensation expense. [5] It claimed a 2020 “profit” by including equity received after the disposal of unwanted assets as “operating income.” Its future “total addressable market” potential included all the maximum worldwide potential of all the food delivery and foreign ridesharing markets it had never penetrated.

It claimed profits would increase as it introduced driverless taxis even though it has not developed any AV technology and there are no prospects that driverless vehicles will be allowed to roam Chinese cities in the foreseeable future. It used a “flywheel” graphic cribbed from Uber’s prospectus (that Uber had cribbed from Amazon) to infer powerful scale and network economies that can’t be seen in any of the operating or financial results.

Beijing’s Open Displeasure Collapses Didi’s Valuation

Didi’s US IPO raised $4.4 billion, valuing the company at $67 billion. Because of strong demand, Didi increased the number of shares available by 10% and sold them at the top of its expected price range. Didi’s US-traded stock reached a high of $16.40 the day after the IPO but has fallen over 50 percent in the four weeks since.

Over the last year, Beijing had been openly working to rein in the growing power of its big tech companies and the plutocrats who run them. Ant Group (Alibaba) was forced to scrap an October 2020 IPO that was expected to raise $37 billion and value the company at over $300 billion, reportedly on the direct instructions of Xi Jinping. Major investigations of antitrust and governance rules were initiated and Alibaba founder Jack Ma, who had openly criticized Beijing’s efforts to regulate Alipay, his financial services company, has largely disappeared from public view. [6]

Beijing announced a major antitrust investigation of Didi and openly expressed concerns about upcoming Didi’s IPO but Didi ignored these signals. [7]

In the week after the IPO, new cybersecurity tax avoidance and other investigations were announced and Didi’s app was removed from Chinese app stores. Beijing’s policy offensive rapidly expanded and investigations have begun at a wide range of tech companies. US investors suddenly realized that it could not value Chinese companies the same way it valued US firms and over $400 billion has been wiped off the valuations of Chinese tech companies traded in the US. [8]

Softbank, which owned 22% of Didi, needed the proceeds of the IPO to cover major recent losses from investments such as WeWork. The collapse of Didi’s stock price cost Softbank roughly $4 billion and shrank the value of Uber’s 13% shareholding in Didi by about $2 billion. Uber took a second hit when Softbank began selling one-third of its stake in Uber in order to replace some of the cash its Didi stock was supposed to generate. [9]

What Should National Policies Towards the “Tech Industry” Be?

One interpretation widely publicized in the western business press is that the Chinese Communist Party was so obsessively concerned with anything that might ever pose any threat to its absolute political authority that it was willing to terrify foreign investors and impose huge costs on the Chinese entrepreneurs whose huge innovations had made the Chinese people much richer. But without discounting the CCP’s desire to protect its hegemony, it may be useful to look at Beijing’s actions from a different angle.

Beijing’s attitude towards its rapidly growing tech industry reflects its understanding of the longer history of tech industry growth in the US, and the impacts of US policies toward the tech industry. US policies have three major components—direct industry oversight, the links to national macroeconomic policy, and the influence of the industry over the Federal Government.

With one major exception, direct government oversight of the tech industry is essentially non-existent. Laissez-faire is the guiding principle and once tech companies reach a certain size they are largely free to ignore any laws and regulations they find inconvenient. Governmental bodies designed to protect broader public interests (antitrust/competition, labor and consumer protections, etc.) may nominally still exist but have been largely gutted. The major exception is national security, where the government can ensure that tech companies support its data collection and surveillance programs.

US macroeconomic policy prioritizes the ongoing appreciation of equity values and a number of other similar asset classes. This has crippled the ability of capital markets to evaluate and price risk and has broken the link between corporate values and the creation of economic welfare benefits. No one cares what causes stock prices to go up as long as stocks go up, and the higher up they go the better.

Since it is far easier to boost stock prices by eliminating competition and exploiting workers and consumers than by developing new technologies or management processes that improve efficiency and quality, innovation declines while predatory value extraction increases. The financial world becomes dominated by artificially manufactured narratives, a far easier way to pump stock prices than complicated analysis of economic fundamentals.

This focus on equity appreciation is also largely divorced from any industrial policy considerations. As long as the stock market keeps rising it does not matter if massive investment has been funneled into the production of cat videos or if an excessive focus on short-term stock prices have crippled the semiconductor and aircraft manufacturing industries.

Years of non-enforcement of routine laws and regulations under laissez-faire, and the ability of a handful of tech companies to achieve unprecedented sizes produced an outcome where both political parties strongly support the interests of the tech industry. This effectively blocks policies (e.g. tax rules, labor laws) that could materially hurt the tech industry. It also means that it is virtually impossible to address externalities created by these policies. These include things like the rapid growth of inequality, the destruction of traditional channels of political discourse and the rights of individuals to privacy and to control their personal data. It also includes the awful, widespread fallout that would result if (when?) the Everything Bubble created by these policies bursts.

Beijing may have come to believe that a system where the Jeff Bezos’ Mark Zuckerbergs and Travis Kalanicks of the world were given unfettered freedom to flaunt any rules they didn’t like may not have been producing efficient outcomes for the rest of society. It is one thing to allow investors who have developed major product and efficiencies to become rich, but a quite different thing if those investors suddenly capture previously unimaginable levels of wealth without actually improving overall economic welfare.

Jack Ma demanded that Beijing’s regulators back off so that Alibaba would have Amazon’s freedom of action and so he could pursue Bezos’ level of wealth. Beijing seems to have decided that this was the point where it needed to start sending signals, and when Didi blew off its concerns about the IPO it realized those signals needed to be stronger and clearer.

The tech industry plays a much different role in the economy in China than in America. When US tech companies were boosting their wealth and power into the stratosphere they were following a path that finance and other industry had already laid out. In China the Communist Party retained strong control over banks and most other major industries. The tech industry represents the breakthrough case where private capital accumulators could achieve enough power to circumvent or thwart central government policies they didn’t like, and industry leaders clearly wanted to entrench a US-type approach. This was the point where Beijing had to decide whether to reestablish some type of meaningful control, or allow the tech industry to pursue increasing US-style laissez faire freedom,

For better or worse, the CCP sees itself as the manager of the Chinese economy, and the political survival of the CCP depends on the perception that it has done a good job and dealt effectively with problems. Beijing is fully aware that inequality in China has been skyrocketing while productivity growth has been stagnating. [10] A growing perception that the benefits of economic growth are no longer being widely shared could do much more to undermine that authority of the CCP than any criticisms from tech titans ever could. If China’s IPO bubble bursts, the CCP would need to move rapidly to ensure damages did not spread throughout the economy.

As the manager of the Chinese economy, the CCP appears concerned that giving greater control of the tech industry to more independent, less accountable people could undermine its ability to manage other parts of the economy. Much of the power and growth of the “tech” industry stems from the Alibaba and Tencent financial payments companies. Beijing may be fearful that increased power and independence could limit Beijing’s ability to control its currency and trade policies, or to fix problems with its fragile shadow banking system or to funnel capital to industries (such as semiconductors or Belt and Road investments) deemed to be major development priorities.

Beijing’s recent statements have noted the importance of developing and controlling “big data” [11] and have raised “national security” concerns about Chinese companies doing IPOs abroad. It is not clear why control of Didi’s information about ridesharing users or sending Didi’s financial reports to the SEC would be major policy/security issues, but it was also not clear why the Trump Administration saw the Tik Tok and WeChat apps as a major threat. In both countries economic policy issues can quickly become very murky once diplomatic and national security policies enter the mix.

Beijing clearly had no desire to go further down the US laissez faire path where private capital accumulators would steadily more powerful. It presumably believes that the benefits of reigning in its tech industry clearly outweigh costs and risks.

The situation will continue to evolve, and it is foolish to try and reduce it to a good-versus-evil narrative. The owners of Didi, Tencent and Alibaba are not heroically resisting encroaching Beijing bureaucrats who are fighting to stifle economic innovation. Beijing’s announced investigations directly focus on longstanding tech industry abuses but it is wildly premature to predict that Beijing’s new policies might turn out to be a major boost for competition and Chinese consumer welfare.

Uber and Didi are Direct Products of These National Policies

It is one thing to document the terrible economics and financial results of companies like Uber and Didi. The more important question is to explain how companies with years of staggering losses can continue to be seen as innovative and successful, and how they can continue to extract billions from investors despite the complete absence of evidence that they could ever become sustainably profitable.

To date this series has emphasized Uber’s construction of artificial narratives and their ability to manipulate the mainstream media into enthusiastically promulgating them. [12] As noted, Didi’s IPO prospectus closely followed the narratives highlighted in Uber’s prospectus. But the US policies toward the tech industry, described above, put that process into a broader context.

When Travis Kalanick blew off every inconvenient law and regulation, he was completely in line with the laissez faire policies that that national elites wanted. It represented a major break from how traditional taxi operators and local regulators worked, but the people who ran the New York Times and the Wall Street Journal believed that taxi service would be substantially improved if government oversight was completely eliminated. It did not matter that those laws and regulations had been established under legal and democratic processes. Uber was not manipulating the media into favoring something contrary to its interests or core beliefs—they were simply providing the narrative explanation as to why Uber fit the approach they already thought was best.

Uber’s investors were not only single-mindedly focused on personal enrichment but were focused on achieving corporate valuations wildly beyond what anyone could have ever imagined for a taxi company. Instead of stopping and asking for evidence as to how this might be possible, those elites became fanatical supporters. The sole objective of business was to create massive equity values. No one cared whether some of those personal gains might come from suppressing driver wages or openly destroying competitive alternatives. No one cared whether capital has been misallocated from much better uses. Both political parties were in full agreement that Uber was a wonderful company.

Uber has continued to survive despite terrible economics because it was the poster child for the elite policies that demonized any government oversight of business and lionized the monomaniacal pursuit of capital accumulation. Membership in those elites required fully supporting those policies, just as membership in Chinese elites requires a full commitment to support the policies of the Communist Party. Despite $25 billion in losses, no one from those elites can admit that Uber might have massively reduced overall economic welfare, because that would require admitting that their overall worldview was badly flawed, and their status as elites might have been illegitimate.

Didi was following Uber’s exact business model and exact IPO approach because it believed that the Communist Party would gradually reduce its control over the economy and would allow the Chinese tech industry to expand under the US policy approach.  Given what happened to Alibaba last year, and the events of the past month, that seems to have been a serious miscalculation.


[1] The Uber business model is documented in detail in Hubert Horan, Will the Growth of Uber Increase Economic Welfare? 44 Transp. L.J., 33-105 (2017) in Hubert Horan, “Uber’s Path of Destruction” American Affairs, vol 3, no 2, Summer 2019, pp.108-133. The TLJ article explains the importance of global dominance at p. 46 and the Uber China debacle (where Uber lost over $1 billion) at p. 99.

[2] For the story of the awful publicity in 2017 generated by Uber’s cultural and governance problems see Can Uber Ever Deliver? Part Ten: The Uber Death Watch Begins, June 15, 2017

[3] Didi prospectus filed June 29, 2021 with the SEC

[4] David Trainer, Didi Chuxing: Different Country, Same Bad Business Model, Forbes Jun 23 2021. This was the only article I found in the US business press focused on Didi’s dubious economics

[5] Can Uber Ever Deliver? Part Nineteen: Uber’s IPO Prospectus Overstates Its 2018 Profit Improvement by $5 Billion, April 15, 2019

[6] Jing Yang and Lingling Wei,China’s President Xi Jinping Personally Scuttled Jack Ma’s Ant IPO, Wall Street Journal, Nov 12, 2020. Ma’s personal wealth was estimated as nearly $60 billion at the time.

[7] Julie Zhu, Pei Li, China’s IPO-bound Didi probed for antitrust violations, Reuters Jun 17, 2021

[8] China Orders 25 Tech Giants to Fix Raft of Problems, Bloomberg News, July 30, 2021; Juliet Chung Justin Baer and Dawn Lim, Investors Lost Hundreds of Billions on China in July, Wall Street Journal, 30 July 2021

[9] Deirdre Bosa, Jordan Novet, Uber shares drop as Softbank plans to sell shares to cover Didi and other losses, CNBC Jul 28, 2021. Uber had acquired a 17% share in Didi in exchange for abandoning its failed Uber China venture. Its share fell to 12% after selling shares in order to cover losses.

[10] For a good discussion of how these inequality and productivity problems create a huge problem for the Chinese government see Matthew Klein and Michael Pettis, Trade Wars Are Class Wars, Yale University Press, 2020, pp 101-130.

[11] China’s Didi Crackdown Is All About Controlling Big Data, Bloomberg News, July 8, 2021

[12] For the development and effectiveness of Uber’s manufactured narratives see the TLJ article pp.76-90 and the AAJ article p. 115-117


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  1. Michae M

    The standalone car-sharing business financial model clearly doesn’t work.

    But the New Tork taxi industry (for one) was no paragon of well regulated capitalism. Taxi drivers – over-whelmingly immigrant and renting their cabs – were ruthlessly exploited by medallion owners, who made millions speculating on ever increasing medallion prices. And local politicians would wink and raise cab fares every year or two – which translated directly into higher daily cab rental rates for drivers. And thereby higher medallion prices. Amity commune it wasnt.

    1. Roger

      The medallion “owners” were never the owners, that would be the general public. Unfortunately, the corrupt politicians allowed those assigned medallions to keep them rather than treat medallions as a yearly license that should be recirculated and increased in numbers as required. A state produced monopoly for the benefit of the few. Uber is just a different path to the same outcome (produced by the state not enforcing its regulations). A true “peoples” state could help produce a ride-sharing app owned by the drivers themselves, with proper regulatory oversight. At some point Uber will run out of cash: “Uber Technologies cash on hand for the quarter ending March 31, 2021 was $5.902B, a 35.77% decline year-over-year.” So crunch time is coming closer. Of course, the fall out will be chaotic for Uber drivers and customers alike (and for the restaurants that use Uber eats). The first investors and the executives will walk off with oodles of cash, just like WeWork. At some point will be added Tesla as the traditional car makers (and the Chinese) flood the market with EV models during the next couple of years and its EV-credit revenue dries up. Netflix may have escaped the trap (cash-flow positive currently), but lets see how it fares post-COVID and with increasing competition.

    2. Watt4Bob

      Under ‘normal’ circumstances, medallion owners face competition from other owners that mediates the price of leasing a taxi.

      The advent of Uber’s attack on the Taxi industry destroyed the value of Taxi medallions;

      From NY Post;

      “The once-rare taxi medallions — which at their peak were worth as much as $1.2 million apiece — tanked to just an average of $200,000 each after ride-share services like Uber and Lyft exploded in the city.

      This sort of pressure has led to all sorts of desperate behavior, as would be expected.

      If you were a small time taxi owner, with a $1.2 million mortgage to pay, you’d be desperate too.

      The “ruthless exploitation” you mention is not the normal operation of the traditional market in Taxi leases, it is the natural result of the crisis that Uber and Lyft have imposed on the Taxi industry with their lawless behavior.

      I understand the economics of the traditional Taxi industry because I drove a cab for 16 years.

    3. Hubert Horan

      The medallion claim is entirely false. This was addressed in Part Six of this series (January 2017).
      The “medallions were exploitive and hurt drivers and passengers” claim was a prominent part of pro-Uber propaganda in those days, as part of their efforts to convince gullible people that Uber was correcting major inefficiencies in the prior system.
      Medallions only had value in three cities (NY/BOS/CHI) and only had significant value in NYC for a couple years after the Fed pushed interest rates to very low levels. Two NY banks seized on the idea of creating a speculative instrument based on medallion resale prices, which quickly became very popular among investors looking for higher yielding but seemingly very safe instruments. This artificially inflated NYC medallion prices (until Uber came along) but those inflated asset values had no impact on driver compensation or passenger fares.
      Traditional taxi service pre-Uber was obviously not all that great and certainly not popular and regulatory systems (which varied widely between cities) had various problems but the overall system balanced fare revenues and actual costs. By any traditional capitalist criteria is was light years better than what Uber did.

      1. Yves Smith Post author

        I never had a problem with the old NYC cabs. Yet, they could be hard to get at shift change or when it rained. But if you really needed a ride, you could always call a pricier radio car service…..which BTW would typically be cheaper than Uber’s non-transparent and often extortionate “peak pricing.”

        And hailing a cab is fun!

        1. vlade

          On Uber destroying the fun – London black cabs, with both their Knowledge and knowledge – both of the actual London places, and stories about who they drove recently.. At least London still managed to retain some of it.

    4. JCH

      It’s clear that the Uber as it exits today isn’t going to be economically sustainable, however, it’s clear that people want access to affordable car services and others want to make money from employing their private vehicles. This is especially true in places that have never had well developed taxi service or mass transit – most “sunbelt” cities for example. The ought to be a regulatory framework that allows for drivers and passengers to connect through a network at market clearing price in these places. The framework shouldn’t but taxis at a disadvantage or hobble the network provider with employer burdens. When you live in one of these transit deserts you really appreciate the availably of ride hailing services. Years ago I saw a post on Alphaville that contained a chart of uber hails from Pittsburgh on Friday and Saturday nights. The spike at 2am suggested a lot of avoided potential DUI’s.

      1. Yves Smith Post author

        It costs very little to develop a taxi app. There’s no need to reinvent the wheel.

        You need regulations to provide a price level that enables drivers to charge fares so they have proper commercial licenses and insurance.

        Even in Birmingham, one of the worst cities in the US to be a cabbie because the airport is so close to the affluent suburbs and downtown, there was good cab service coverage pre Uber. Not any more, and by “not any more” I mean pre Covid.

        1. jch

          I remember, pre uber, calling surly dispatchers and waiting an hour for a cab that never came and then walking 3 miles at 2am. It just seems as though we have underutilized vehicles and people that want to meet demand. It’s mispriced in places like NYC that have population density adequate to support taxis and that would benefit from steep congestion charges to drive people back to public transit. But again a game changer in the hinterland and I for one would like to see a sustainable evolution.

  2. James E Keenan

    Whenever I see a Hubert Horan article cross-posted to NC, I read that first. Here I was expecting a dissection of Didi’s balance sheet similar to that which Horan has done on Uber’s in the past. What I got is one of the best analyses of the difference between the U.S. and Chinese political economies that I have ever read.

    1. chuck roast

      Indeed. And of course Softbank shows up. When a multi-billion dollar debacle occurs can Softbank not be involved? We have a Hubert Horan for Uber. Is there a Hubert Horan for Softbank?

    2. H. Alexander Ivey

      Damn right (about US vs China views on the market and its government).

      Hogan’s posting explained to me why no one talks about “fundamentals” when talking about stock prices. I felt Wall Street got totally rigged sometime under Greenspan. Now I see how.

      Thanks for showcasing Hogan’s work.

  3. The Rev Kev

    Another excellent article in this series. More and more I can see why China dropped the hammer on these corporations. All those billionaires wanted to “Americanize” the Chinese economy by making out like bandits while the rest of the country falls behind by them exploiting workers and letting innovation decline – with the CCP left to clean up the messes and being unable to reign in these companies. I still think that a driver for this was the Chinese listening to people like Michael Hudson. I heard that Dido launched their IPO because they felt big enough to get away with it. Just like Jack Ma did. Boy, didn’t they screw up.

    You want to know the funny thing? This is what developed countries are supposed to do. Reign in the Zuckerbergs and the Bezos and the Kalanicks. People like that would help let their own country degrade into a medieval slum so long as they were fabulously wealthy and powerful. Imagine if America could have sent them to a re-education camp for a spell.

    Maybe one day Hubert Horan can put these articles together into a small publication. It should be quite useful in future business schools trying to understand why such companies lasted so long. A mountain of resources wasted just to put taxi drivers out of business and make some people billionaires. Actually such a book should be a standard text.

    1. BrianC - PDX

      My preference would be 10 years of hard labor, north of the Arctic Circle. Instead of “re-education camps”.

      Though with global warming, living north of the Arctic Circle may not be as much of a hardship going forward.

  4. James Simpson

    Thanks for an enlightening article. It seems that the ruthless, antidemocratic and inhumane CCP is more concerned about public opinion than is the supposedly exceptional democracy of the USA.

    However, you wrote nothing about the impact of Uber on the physical environment. It aims to destroy public transport and flood the streets with yet more inefficient, resource-intensive, energy-gobbling cars. That our governments encourage such a future in the UK and USA is another example of the priority they give to dividends over public goods.

  5. Len Sherman

    Hubert Horan is insightful as always in drawing the broader geopolitical implications of Uber and Didi’s ongoing path to UN-profitability.

    I frankly was gobsmacked (but no longer should be) at the ease with which Didi was able to raise >$4 billion at the high end of its IPO price range, despite ample evidence in its plagiarized rewrite of Uber’s S-1 of a predictably broken business model. With the exception of Hubert Horan and David Trainer’s analysis of Didi’s economics, the narrative following DIDI’s stock collapse has focused entirely on the CCP crackdown, while missing the underlying issue that Didi was NEVER worth anywhere near its IPO valuation. Some things never change.

    It’s interesting to note VCs now appear to be rapidly pivoting away from rideshare’s “asset-light” business model in a herdlike rush into capital-intensive business variants. In 2021 YTD, VCs have pumped $3 billion into 13 rapid delivery grocers, including a new $550M investment in global industry leader Getir, valuing the venture at $7.6 billion, triple its valuation two months earlier (WTF!)!.

    While the instant delivery players have the advantage of vertical integration to tap product margins as an offset to delivery costs, other aspects of this new VC darling are predictably awful. Rapid delivery businesses don’t scale well, and have even smaller geographic network effect territories and lower barriers to entry than ridesharing. Not surprisingly, this sector has become the new money-sink for investor capital.

    Business models matter.

    1. Richard

      My grandparents owned and operated a neighborhood grocery from the 1930s through 1960s in an older suburb of a Midwestern city. They delivered through the Forties into the Fifties. Then they stopped. Why? Delivery was no longer needed or wanted post-war, as servants vanished, riders left streetcars (on which a week’s shopping was difficult to carry) and cars proliferated, increasingly second cars.

      Around 2000 an outfit called Peapod appeared and tried to resurrect the model. It was a Wall Street darling for a while. Today, only a remnant remains, apparently the captive delivery service of the stores of a multinational grocery chain owner.

      Now someone is trying again. It won’t work outside mass transit dependent NYC, at least until private auto ownership falls back to 1930s’ and 1940s’ levels under environmental pressure.

  6. Thuto

    The CCP realized that its message that the financial interests of tech companies are subordinate to the national interests of China wasn’t coming through loud enough and decided to crank up the decibel levels. The Chinese tech billionaires were becoming power centres unto themselves because most had their fortunes minted in consumer facing social media/fintech/ecommerce industries and as such, had carved out a cult status that threatened to usurp the public influence of the state (this is partly the reason why China is shifting its tech capital allocation from consumer-social towards deep/hard tech to create tech moguls with lower public profiles). Wealth accumulation will still be possible in China but only under terms defined by the state, which has always been the compact between private capital and any government, but private capital is wont to abuse its power to slide countries into corporate oligarchies over which it presides, hence it’s being cut down to size in short order in China.

    As regards Uber, the runway for mounting losses is clearly not going to run out any time soon, so the only option is to keep doubling down on its artificially created narrative of inevitable profitability to drown out the findings of people like Hubert who look under the hood and don’t like what they see.

  7. HotFlash

    When Travis Kalanick blew off every inconvenient law and regulation, he was completely in line with the laissez faire policies that that national elites wanted.

    Not merely ‘in line with’. I think of Uber as a mercenary army whose real function is to break the rule of law so corps/national elites have free reign. The smart money will flow as long as Uber is doing that; the dumb money, following the smart money, will flow until they figure out that the gig is over or (more likely) lose their $$.

    1. HotFlash

      per Len Sherman August 2, 2021 at 9:14 am
      VCs now appear to be rapidly pivoting away from rideshare’s “asset-light” business model in a herdlike rush into capital-intensive business variants
      Ah! Smart money exits, dumb money loses wealth. Ya know, that’s not just gonna be mom and pop, it’s gonna be CalPERS and such, dumb money if there ever was.

      1. drumlin woodchuckles

        Isn’t the money that CalPERS invests all belonging to mom and pop government employee? So it will be various moms and pops who lose the money which CalPERS flushes down the Uber.

    2. Roger

      So, “money well spent” by the rich on a Trojan horse to destroy regulations and labour power which they more than make up for in the resulting gains in others areas of the economy. Would not surprise me. Same model as bribing politicians with a 100x+ return on the bribery investments.

  8. David Trainer

    Great article. Thanks for mentioning our report on Didi.
    These are wild days…Didi really takes the cake for revealing investor gullibility…the CCP crackdown was imminent…you had to be crazy to step in front of that train regardless of what you thought about the business model…which, if anything, only proves that Uber/Lyft can’t work.
    I mean, if Didi can’t make it work with a 90% monopoly, then how can anyone make it work…?

  9. Conrad Schumacher

    Let me echo the thank you to Hubert for writing another great article in this series and to Yves for putting it up here.

    I can’t help but wonder if the differing approach in China is in part due to the Chinese leadership growing up during the excesses of the Cultural Revolution and thus having a real desire to avoid the opposite extremism from unchecked techno ‘capitalism’ taking hold.

  10. worldblee

    Instead of investing in Uber, one could invest in something with a greater chance of success—anti-gravity technology or perpetual motion machines come to mind… /s

  11. drumlin woodchuckles

    Let us hope that Uber can be kept Zombie-undead and shuffling forward long enough to cost the overflowing investors so much money that their cup will runneth out.

    1. Anders K

      I think the aim is to keep on until the valuation grows so big that all the pension schemes “have” to invest and then rely on that + TBTF status to get made whole or at least allow the important people to exit with big bags of money, if not at the absolute top “they had to take a 50% haircut” (on the 1000% inflated absolute top price).

      Sadly, the more I learn of finance, the more it seems to be a scam on the regular people, who now have to be a part of it due to pension savings etc.
      Everything will be great until oops, so sorry, there’s not enough money for you to retire, please keep working until you die. I doubt that will end well for society (nor regular people).

  12. Michael R

    Now 71 years old, I look back at my naïveté that the spread of communication technology would reduce uninformed investment decisions.
    It seems to empower the opposite effect. Is the classic college class lecture of the tulip bulb fiasco still taught? I retired from the investment banking business some years ago. My memory of the bulbs prevented us from truly bad decisions. On the other hand it also prevented my investment in a small company whose business model relied on serving $4.00 coffees to folks.

    1. Tom Dietsche

      Michael, like you I’m 71 and a (mostly) rationalist. Sadly, 95% of this species operates on emotions, not logic or experience. That’s why casinos can stay in business! And how RobinHood could have done what they did. Even highly educated investment bankers aren’t immune to herd behavior, FOMO and optimism over facts.

      Many people don’t go to college, and of those who do, very few study economics. The “dismal science”, what a great marketing slogan!

      Also, your views may be somewhat biased due to living in the tiny community of investment banking(?). Most people have no real idea what an investment banker is, much less the details of what they do.

  13. Altandmain

    I think the filter ate my other comment. This is a big reason why I think China will eventually overtake the US.

    The Chinese understand that the rich techies are rent seeking parasites and will bring them down a few pegs if they feel they clash with the national interest.

    In the US, they have free reign to do what they want.

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