Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Capital Markets

US-based online food delivery company <a href="https://www.smartkarma.com/entities/doordash-inc" target="_blank" data-smartkarma-citation="entities:28881:1" rel="noopener">DoorDash Inc (0881510D US)</a> has filed to go public. In this note we describe the company's operations and compare its scale and efficiency to other online food delivery companies in the US and around the globe. 
Intensely focused and increasingly dominant in its home market, DoorDash has made admirable progress toward profitability by focusing on smaller cities and suburban areas in the US. This approach is the opposite of conventional wisdom, which suggests that only a handful of large US cities can generate the order density necessary to make online food delivery economically viable. 
DoorDash is seeking growth from new market segments adjacent to its core operation even as it faces the threat of a large, disruptive new entrant in US online food delivery. Last valued at US$16 bn in June 2020, we believe DoorDash's unorthodox approach deserves to be thoroughly understood by investors. We will write more about DoorDash as the IPO process moves forward.

US-based online food delivery company DoorDash Inc (0881510D US) has filed to go public. In this note we describe the company's operations and compare its scale and efficiency to other online food delivery companies in the US and around the globe. 
Intensely focused and increasingly dominant in its home market, DoorDash has made admirable progress toward profitability by focusing on smaller cities and suburban areas in the US. This approach is the opposite of conventional wisdom, which suggests that only a handful of large US cities can generate the order density necessary to make online food delivery economically viable. 
DoorDash is seeking growth from new market segments adjacent to its core operation even as it faces the threat of a large, disruptive new entrant in US online food delivery. Last valued at US$16 bn in June 2020, we believe DoorDash's unorthodox approach deserves to be thoroughly understood by investors. We will write more about DoorDash as the IPO process moves forward.

DoorDash IPO Context: What It Is & How It Compares to Online Food Delivery Universe

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/lyft-inc" target="_blank" data-smartkarma-citation="entities:24423:1" rel="noopener">Lyft Inc (LYFT US)</a> reported 3Q20 results post the close on Tuesday, with top-line revenues down 48% in 3Q20 compared to down 61% in 2Q20 driven by lockdown restrictions and the global pandemic. Shares, however, have moved strongly upward driven by the hope of a global vaccine which has lifted lockdown affected stocks. We look at the latest results and company outlook below and provide an updated view on the stock.

Lyft Inc (LYFT US) reported 3Q20 results post the close on Tuesday, with top-line revenues down 48% in 3Q20 compared to down 61% in 2Q20 driven by lockdown restrictions and the global pandemic. Shares, however, have moved strongly upward driven by the hope of a global vaccine which has lifted lockdown affected stocks. We look at the latest results and company outlook below and provide an updated view on the stock.

Lyft 3Q Results: Can Ride-Sharing Find a Profitable Path?

Telco/Internet specialist

Kirk Boodry

Redex Research

Rakuten posted Q3 results that missed on profitability as the company ramped up spending on mobile to expand network coverage. With surveys of existing mobile users that show high marks for cost performance and simplicity but much less enthusiasm for network quality, this is what Rakuten needs to do to be competitive. Management said they are confident on progress towards profitability but this month’s monetization of its stake in Lyft and the sale of subordinated bonds indicate losses are going to continue for now. Results from the core eCommerce and Fintech segments were steady but not surprising as growth in the former moderated as Japan returned to normal whilst robust online trading boosted the latter as it did last quarter.

Rakuten posted Q3 results that missed on profitability as the company ramped up spending on mobile to expand network coverage. With surveys of existing mobile users that show high marks for cost performance and simplicity but much less enthusiasm for network quality, this is what Rakuten needs to do to be competitive. Management said they are confident on progress towards profitability but this month’s monetization of its stake in Lyft and the sale of subordinated bonds indicate losses are going to continue for now. Results from the core eCommerce and Fintech segments were steady but not surprising as growth in the former moderated as Japan returned to normal whilst robust online trading boosted the latter as it did last quarter.  

Rakuten - Q3 20 Results: Record Mobile Losses Are Unlikely to Ease Soon

Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

In our previous insight <a href="https://www.smartkarma.com/insights/dida-pre-ipo-carpool-focused-but-is-main-business-in-short-term-risk" target="_blank" data-smartkarma-citation="insights:44376" rel="noopener">Dida Pre-IPO: Carpool-Focused, But Is Main Business in Short-Term Risk?</a> , we looked at Dida’s business model and its growth prospects by comparing the company with its rival <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (1284375D CH)</a>. In this insight, we carry out a financial analysis and outlook on the company. Our key points are:<ul>
<li>
<a href="https://www.smartkarma.com/entities/dida-inc" target="_blank" data-smartkarma-citation="entities:29701:1" rel="noopener">Dida (DIDA HK)</a> has reported strong revenue growth rates during 2017-2019 (CAGR of 244%). Moreover, despite the COVID impact, revenue during 1H 2020, grew by 66% YoY. A majority of the revenue growth came from the carpooling business (CAGR of 339% during 2017-2019). Given the strong industry growth prospects for carpooling and Dida’s dominant position in the market, if we conservatively assume Dida to grow in line with the industry (an outperformance is likely though), we could expect Dida’s revenue to grow at a double-digit CAGR of c. 27% through 2022.</li>
<li>Gross profit margins are at 82.2% as of 1H 2020, driven mainly by the carpooling business (GPM: 86.3%). However, based on our MPR analysis, total GPM and the GPM of the carpooling business appears to have reached potential, where significant upside is unlikely.</li>
<li>An upside in GPM is likely for the ride-hailing business, which started generating gross profits only in 1H2020 (Dida’s 31.1%), but appears limited given that GPM of peers like <a href="https://www.smartkarma.com/entities/uber-technologies-inc" target="_blank" data-smartkarma-citation="entities:430:1" rel="noopener">Uber (UBER US)</a> and <a href="https://www.smartkarma.com/entities/lyft-inc" target="_blank" data-smartkarma-citation="entities:24423:1" rel="noopener">Lyft Inc (LYFT US)</a> range around 34-39%. Moreover, at the overall operating level, this business is unlikely to report profits any time soon as we see with international peers like Uber and Lyft.</li>
<li>Selling expenses do not move in line with revenue. Selling expenses usually increase when Dida expects to boost its sales in the upcoming year. This was the case in 2018. Having said that, a majority of selling expenses include user incentive costs, which has levelled out for the carpooling business but is likely to continue for the ride-hailing business which Dida started last year. Overall, given that Dida is yet to grab a share of the ride-hailing market, selling expenses are likely to be a significant expense over the next few years as well.</li>
<li>The company is generating losses at the net level and these losses are likely to continue even based on our less conservative assumptions. Though based on adjustments the company makes, profits are reported, we feel that these adjustments do not necessarily justify the company’s loss-making position.</li>
</ul>

In our previous insight Dida Pre-IPO: Carpool-Focused, But Is Main Business in Short-Term Risk? , we looked at Dida’s business model and its growth prospects by comparing the company with its rival DiDi Chuxing (1284375D CH). In this insight, we carry out a financial analysis and outlook on the company. Our key points are:

Dida (DIDA HK) has reported strong revenue growth rates during 2017-2019 (CAGR of 244%). Moreover, despite the COVID impact, revenue during 1H 2020, grew by 66% YoY. A majority of the revenue growth came from the carpooling business (CAGR of 339% during 2017-2019). Given the strong industry growth prospects for carpooling and Dida’s dominant position in the market, if we conservatively assume Dida to grow in line with the industry (an outperformance is likely though), we could expect Dida’s revenue to grow at a double-digit CAGR of c. 27% through 2022.
Gross profit margins are at 82.2% as of 1H 2020, driven mainly by the carpooling business (GPM: 86.3%). However, based on our MPR analysis, total GPM and the GPM of the carpooling business appears to have reached potential, where significant upside is unlikely.
An upside in GPM is likely for the ride-hailing business, which started generating gross profits only in 1H2020 (Dida’s 31.1%), but appears limited given that GPM of peers like Uber (UBER US) and Lyft Inc (LYFT US) range around 34-39%. Moreover, at the overall operating level, this business is unlikely to report profits any time soon as we see with international peers like Uber and Lyft.
Selling expenses do not move in line with revenue. Selling expenses usually increase when Dida expects to boost its sales in the upcoming year. This was the case in 2018. Having said that, a majority of selling expenses include user incentive costs, which has levelled out for the carpooling business but is likely to continue for the ride-hailing business which Dida started last year. Overall, given that Dida is yet to grab a share of the ride-hailing market, selling expenses are likely to be a significant expense over the next few years as well.
The company is generating losses at the net level and these losses are likely to continue even based on our less conservative assumptions. Though based on adjustments the company makes, profits are reported, we feel that these adjustments do not necessarily justify the company’s loss-making position.


Dida IPO (Financial Analysis): Expect Strong Revenue Growth but Not Profits

We hope <a href="https://www.smartkarma.com/entities/dida-inc" target="_blank" data-smartkarma-citation="entities:29701:1" rel="noopener">Dida (DIDA HK)</a> will publish another set of updated financial statements (from Q3 2020) before it lists in Hong Kong later this year. If and when those results are published, investors should study them carefully to detect signs of a resurgent <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (1284375D CH)</a> , the ride-hailing giant that exited the car pool market in late 2018 but quietly re-entered about a year ago.
The two most telling signs of a DiDi ChuXing resurgence in the car pool segment would be: 
<ol>
<li>Dida Inc's car pool revenue growing slower than its car pool ride volume or GTV</li>
<li>A sharp rise in Sales &amp; Marketing expenses relative to DiDa Inc's overall revenue</li>
</ol>
Both of the above metrics would be reflected in DiDa Inc's car pool 'take rate': the net revenue it earns on booking car pool rides after deducting any incentives paid to drivers, payments that have likely diminished dramatically in the two years since Didi ChuXing exited the market. 
We suspect that in the absence of a large, savvy competitor (like DiDi ChuXing), DiDa Inc's 'take rate' is higher and its spending on Sales &amp; Marketing is lower than it would be otherwise. Signs that DiDi ChuXing is aggressively pushing its way back into this market -- which it used to dominate, and not so long ago -- would be negative for DiDa Inc, in our view.
In fact, the 'free ride' DiDa Inc has enjoyed as the dominant (and quite profitable) player in the growing car pool segment could come to an end.

We hope Dida (DIDA HK) will publish another set of updated financial statements (from Q3 2020) before it lists in Hong Kong later this year. If and when those results are published, investors should study them carefully to detect signs of a resurgent DiDi Chuxing (1284375D CH) , the ride-hailing giant that exited the car pool market in late 2018 but quietly re-entered about a year ago.
The two most telling signs of a DiDi ChuXing resurgence in the car pool segment would be: 

Dida Inc's car pool revenue growing slower than its car pool ride volume or GTV
A sharp rise in Sales &amp; Marketing expenses relative to DiDa Inc's overall revenue

Both of the above metrics would be reflected in DiDa Inc's car pool 'take rate': the net revenue it earns on booking car pool rides after deducting any incentives paid to drivers, payments that have likely diminished dramatically in the two years since Didi ChuXing exited the market. 
We suspect that in the absence of a large, savvy competitor (like DiDi ChuXing), DiDa Inc's 'take rate' is higher and its spending on Sales &amp; Marketing is lower than it would be otherwise. Signs that DiDi ChuXing is aggressively pushing its way back into this market -- which it used to dominate, and not so long ago -- would be negative for DiDa Inc, in our view.
In fact, the 'free ride' DiDa Inc has enjoyed as the dominant (and quite profitable) player in the growing car pool segment could come to an end. 

No More 'Free Ride'? Key DiDa Inc Metrics That Could Reveal a DiDi ChuXing Resurgence

United States

Lyft, Inc. provides online ridesharing services. The Company offers ride booking, payment processing, and car transportation services. Lyft serves customers in the United States.

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Lyft (LYFT US)

DoorDash IPO Context: What It Is & How It Compares to Online Food Delivery Universe

US-based on-demand food delivery company DoorDash plans to list soon. In this note we show investors how DoorDash differs from some of its peers in...

Tracking Traffic

Rakuten - Q3 20 Results: Record Mobile Losses Are Unlikely to Ease Soon

Rakuten ramped up mobile investment in Q3 leading to higher than expected operating losses. Recent moves to raise cash indicate higher investment...

Kirk Boodry

Dida IPO (Financial Analysis): Expect Strong Revenue Growth but Not Profits

This is our follow-up note on Dida's IPO. In this insight, we carry out a financial analysis and outlook on the company.

Aqila Ali

No More 'Free Ride'? Key DiDa Inc Metrics That Could Reveal a DiDi ChuXing Resurgence

DiDa Inc has carved out a niche for itself in China's growing car pool segment. But should ride-hailing giant DiDi ChuXing re-emerge as a player,...

Tracking Traffic

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