Ride-Sharing Profitable Or Not? 19

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SECTOR BRIEFING number DBS Asian Insights DBS Group75 Research • May 2019 Ride-sharing Profitable or not? 19

DBS Asian Insights SECTOR BRIEFING 75 02

Ride-sharing Profitable or not?

Sachin MITTAL Equity Analyst DBS Group Research [email protected]

Produced by: Asian Insights Office • DBS Group Research

go.dbs.com/research @dbsinsights [email protected]

Wen Nan Tan Editor Martin Tacchi Art Editor 19

DBS Asian Insights SECTOR BRIEFING 75 03

04 Executive Summary Can ride-sharing be a profitable model? 09 What is ride-sharing? Market size Different ride-sharing models in play Ride-sharers expanding beyond simple-taxi offerings Safety is another key appeal of ride-sharing SoftBank’s role in mediating ride-sharing industry competition 13 Is ride-sharing a profitable business model? Understanding the key elements driving profitability of ride-sharers Path to profitability of ride-sharers – Line by Line analysis What does it take to become profitable in 17 the ride-sharing business? Confronting arguments against the profitability of ride-sharing 27 Playbook for smaller ride-sharing operators Regulations: The biggest overhang for ride- 30 sharers Drawing insights from E-commerce to ride- 32 sharing 40 Appendix Key ride-sharers around the world DBS Asian Insights SECTOR BRIEFING 75 04

Executive Summary

Can ride-sharing be a profitable model?

From our analysis into the operations of ride-sharers, we found that dominance and scale are the two key drivers for profitability. Dominance in key cities allows ride-sharers to ease spending on rider incentives and marketing expenses, without major driver or rider churn.

Scale may entail lower revenue per ride due to expansion outside the major cities but leads to superior gross margins. Key benefits of scale are lower insurance costs, payment processing fee and fixed platform operating costs as a percentage of revenue. We believe that ride- sharers with > 60% market share in their respective countries, including key metropolitans, should reap benefits of their dominance.

Our key finding is that a region cannot have more than one profitable ride-sharing player. Ride-sharers operating in the South East Asian region may start to realise scale benefits at US$1.3-1.7b revenues. This is provided, their expansion plans which typically lead to delays in reaching profitability, are minimal.

What does it take to build a profitable ride-sharing business?

Dominance Scale Dominance in key markets Scale allows bigger keeps sales & marketing players to reduce expenses and rider insurance, payment and incentives in check fixed operating fee as a percentage of revenue

Source: DBS Bank DBS Asian Insights SECTOR BRIEFING 75 05

Does this mean that smaller operators should just pack up and leave?

Whilst the path towards profitability for smaller operators remains rocky, we believe smaller players can co-exist with market leaders with the right strategies in place.

We outline three distinct strategies that smaller players can pursue that could set them on a path towards profitability:

1. Focus on niche market segments that are typically underserved by bigger operators (Eg. Ola for Auto-rickshaws)

2. Focus on specific regions / cities to limit competitive play with bigger players to drive down incentives and marketing expenses

3. Develop an ecosystem of more profitable services leveraging the ride-sharing platform and the digital follower base

Playbook for smaller operators

Niche segmental play Selective regional play Ecosystem play Dominate niche sub- Dominate smaller cities/ Leverage the ride-sharing segments in ride-sharing regions underserved by platform and user base to underserved by market leading ride-sharers diversify and venture into leaders other profitable segments

Source: DBS Bank DBS Asian Insights SECTOR BRIEFING 75 06

Key financial and operational metrics of ride-sharers around the globe

Grab Go-Jek Uber Lyft Ola Annual rides (in m) 2,409 1,200 5,220 619 1,000 Active Users (in m) N/A 25 91 18.6 N/A Active Drivers (in m) 2.8 1.0 3.9 1.9 1.0 Annual Revenue (FY19 for Grab) 2,000 N/A 11,270 2,157 318 (in US$m) Valuation (based on latest 14,000 9,500 85,000 20,696 6,000 funding rounds and latest market cap for Lyft) (in US$m) EV/Revenue 7.0 N/A 7.5 9.6 18.9 Total funds raised (in US$m) 8,800 2,000 24,200 4,900 3,800

Source: DBS Bank, Various media reports

Growth in gross bookings likely to remain in mid double digits for ride-sharers

We are of the view that Ride-sharing is likely to witness a growth trajectory akin to that of E-commerce in its early days, though profitability is likely to be lower. With penetration of ride- sharing services still hovering below 1% of total passenger vehicle trips of less than 30 miles, there is ample headroom for double-digit growth for ride-sharers over the medium term.

Gross bookings and GMV growth comparisons

Source: Companies, DBS Bank DBS Asian Insights SECTOR BRIEFING 75 07

Key financial and operational metrics of ride-sharers around the globe However, the long term profitability of ride-sharers is likely to be lower than that of E-commerce marketplaces in our view. This is mainly due to:

1. Regulatory concerns about lowly paid drivers may lead to slower growth or even declines in the take rate of ride-sharers, adversely impacting profitability

2. Lower margin profiles of ride-sharers, given that sales and marketing expenses are borne by ride-sharers. Ecommerce marketplaces, on the other hand, incur minimal sales and marketing expenses as most of these expenses are incurred by sellers on their platform

3. Quantum of revenue that can be derived regionally is lower in comparison to E-commerce as there is a physical limitation on the number of drivers and riders in a region. E-commerce, on the other hand, holds a much higher ceiling given the ease of scaling up the number of product and service offerings in a given region

Regulations could Take rates for ride sharers vs. E-commerce limit any further improvements in the high take rates of ride-sharers

Gross bookings and GMV growth comparisons

Source: Companies, DBS Bank

Sales and marketing Sales and marketing expense as a percentage of revenue expense substantial for ride-sharers but not for ecommerce players

Source: Companies, DBS Bank DBS Asian Insights SECTOR BRIEFING 75 08

Can Automated Vehicles (AVs) increase the take rate of ride-sharers?

The take rate of a ride-sharing business is expected to increase significantly when AVs become common since driver pay is the most expensive element of a ride at present, accounting for c. 75% of the total fare of a ride. All major ride sharers are in the process of developing and testing AVs. However, the likes of Waymo (Alphabet’s self-driving arm) and Cruise (General Motors), that lead the AV race are already trialing ride-sharing services with their self-driving technologies, which could present a threat to existing ride-sharers. Automobile manufacturers like Tesla have also expressed an interest in offering ride sharing services through its vehicles as announced recently. DBS Asian Insights SECTOR BRIEFING 75 09

What is Ride-sharing?

ost of us have hailed a cab at least once in our lives. Ride-sharing refers to the same arrangement, except the “hailing” takes place via digital means – either via a smartphone application or a website browser. Drivers are also often freelancers and not dedicated drivers of taxis. Ride-sharing allows users Mto hail an array of transportation options, ranking from Limousines, black cars and choppers to auto rickshaws and motor bikes.

Ride-sharing involves the provision of a taxi-like service via the use of Global Positioning System (GPS) enabled software, linking drivers and passengers directly without the need for a dispatch centre. The platforms are account-based, with payments being automatically processed via the subscriber’s credit card or manually at the end of the trip. Different service options are typically available, ranging from shared rides with other passengers through to rides in luxury limousines. Market size

Ride-sharers primarily target short passenger trips, often of less than 10 miles. Their focus greatly lies in metropolitan cities of the world, where frequency of rides is usually high and distance travelled short. According to Uber, ride-sharers can target a market that is worth as much as US$5.7 trillion in 175 countries across the globe. This is based on 11.9 trillion miles travelled per year in passenger vehicles, including public transportation miles in all countries globally.

Potential size of the market up for grabs for ride-sharers

Total Addressable market (175 countries) All passenger vehicle and public transport trips – 11.9t Miles Valued at - US$ 5.7t

Trips in public transport– 4.4t Miles Valued at - US$ 1.0t

Trips in passenger vehicles – 7.5t Miles Valued at - US$ 4.7t

Source: Uber DBS Asian Insights SECTOR BRIEFING 75 10

Major ride-sharers around the globe

Source: Mapchart, DBS Different Ride-sharing models in play

Ride-sharing companies have come up with different models of service offerings to cater to the requirements of various user groups, targeting high-end, mid-market and budget users separately.

For instance, Uber, the biggest ride-sharing platform globally, offers premium services through its service offerings such as Uber Black, Black SUVs and Uber Select. The vehicles offered via these services are usually black in color, sometimes equipped with personal chauffeurs and target business customers and high net worth individuals.

Lyft also caters to the premium market through Lyft Lux, Lux Black, and Lux Black XL, where drivers with qualifying vehicles have the opportunity to earn more by listing their vehicles under those ranges.

Uber’s mid-market range offerings include UberX and UberXL, which offer everyday rides at affordable prices. Lyft caters the mid-market through brands Lyft and Lyft XL. These models target regular customers seeking convenience at affordable prices.

Both Uber and Lyft cater to budget customers. UberPool and Lyft Shared are some of the examples in this category. Here, drivers cater to multiple customers, who share destinations that are in close proximity to each other, simultaneously, with a cheaper rate offered to each customer. DBS Asian Insights SECTOR BRIEFING 75 11

Ride-sharers expanding beyond simple-taxi offerings

Ride-sharing services have grown rapidly worldwide over the last five years, with companies such as Uber, Didi Chuxing (Didi), Grab and Ola rising to be among the most prominent. With ride-sharing turning out to be such a successful venture, most of the ride-sharers are now expanding beyond ride-sharing, into other adjacent segments like bike-sharing and scooter sharing, logistics and autonomous driving.

Specifically, Lyft offers an expanded suite of transportation including shared bikes and scooters for shorter rides and first-mile and last-mile legs of multimodal trips. Lyft has also added information on nearby public transit routes in selected cities to offer riders a robust view of transportation options. This multimodal platform better enables Transportation as a Service (TaaS), which is a viable alternative to car ownership.

Through its New Mobility Solutions offerings, Uber also caters to consumers with access to rides through a variety of modes, including dockless e-bikes and e-scooters. Uber expanded into logistics in 2017, introducing “Uber Freight”, connecting shippers with drivers and small fleets hauling freight via a load-matching mobile app. Furthermore, Uber, Lyft and Didi are all piloting self-driving projects alongside with manufacturers of automobiles. Safety is a key appeal of ride-sharing

Ride-sharing services have also instilled confidence in drivers and riders since there is more transparency and trust through the rating system, where both riders and drivers get the opportunity to rate their experience on the ride. The two way system holds both riders and drivers accountable for their behaviour during the ride. Consistently lower ratings could even result in a ban from the usage of the ride-sharer’s services. Furthermore, in-app safety features allowing riders and drivers to notify authorities and their friends of any incidents, share their live location with other users, 24/7 incident reporting and phone number anonymization have boosted the confidence of riders and drivers to utilise the service even further. This is not to say that ride-sharing is perfectly safe. Three female passengers using the services of Didi have been murdered by their drivers over the 2016-2018 period, signifying safety is still a concern in ride-sharing. However, ride-sharers have utilised technology tools at their best to offer a much better sense of safety than their traditional taxi-counterparts.

SoftBank’s role in mediating ride-sharing industry competition

Prominent Japanese investor, SoftBank, has built a stronghold in the ride-sharing market worldwide, placing the firm within the ranks of the largest investors in all the leading ride-sharing platforms. Its investments in the ride-sharing industry include Uber (US), Grab DBS Asian Insights SECTOR BRIEFING 75 12

(Singapore), Didi (China), Ola (India) and Brazil’s 99 (which was later acquired by Didi). Softbank’s influence on each ride-sharing company is significant. For example, following its investment into Uber, SoftBank expanded Uber’s board from 11 to 17 members (including two directors representing SoftBank’s interest), reduced the voting power of early shareholders, and limited the influence held by Uber co-founder and former Chief Executive Travis Kalanick.

Softbank’s ambitious plans for the ride-sharing industry was laid out in May 2018 when Chief Executive Masayoshi Son shared his plans to establish a Visionary Fund to consolidate all its ride-sharing companies. In total, the Japanese entrepreneur has placed a US$60 bn bet in more than 40 companies in a bid to steer the US$3 tn global automotive industry1. SoftBank is now poised to use its influence to broker deals between ride-sharing companies that might otherwise battle indefinitely, bringing about industry consolidation, as in the case of Grab acquiring Uber’s South East Asian operations in 2018. This, we believe could fare well for the bigger ride-sharing operators globally, as Softbank could mediate to limit instances where bigger players cross paths with each other.

However, the SoftBank portfolio is not without risks, particularly for companies dependent on the Japanese firm for financial sustenance for years to come. SoftBank faces financial pressures, including an obligation to pay an annual 7% dividend on a portion of the invested capital and the firm has already burnt through a significant portion of the Vision Fund. Whilst this may impose pressure on Softbank’s future investments in the industry, Softbank has already made its mark as the leader of the ride-sharing industry globally and would be a key mediator driving rational competition within the industry. DBS Asian Insights SECTOR BRIEFING 75 13

Is Ride-sharing a profitable business model?

e look into the unit economics of ride-sharing operators, basing our analysis on recent Initial Public Offering (IPO) filings of Uber and Lyft in a bid to understand the per-ride profitability of ride-sharing operators on a pure-direct W cost basis at present. Uber’s ride-sharing business, on a pure-direct cost basis turned positive in 2018

Uber - Ride Sharing (US$) Per Ride Lyft - Ride Sharing (US$) Per Ride 2016 2017 2018 2016 2017 2018 Gross booking per ride 10.78 8.40 7.95 Gross bookings per ride 11.73 12.21 13.00 Driver fees and incentives (8.84) (6.56) (6.19) Driver Incentives (1.46) (1.02) (0.87) Revenue 1.94 1.84 1.76 Driver Pay (8.15) (8.37) (8.65) Excess driver incentive (0.26) (0.12) (0.13) Driver pay and incentives (9.61) (9.39) (9.52) Other cost of revenue (0.87) (0.83) (0.70) Contribution 0.82 0.89 0.93 Revenue 2.11 2.82 3.48 Operations and support (0.45) (0.31) (0.24) Cost of revenue (1.72) (1.76) (2.01) Sales and marketing (0.41) (0.32) (0.25) Other adjustments 0.11 0.00 0.01 Driver referrals (0.08) (0.05) (0.02) Contribution 0.50 1.07 1.49 Rider Incentives (0.31) (0.22) (0.22) Operations and Support (0.60) (0.49) (0.55) Operating Profit/loss before (0.43) (0.01) 0.20 Sales and Marketing (1.47) (1.10) (0.82) corporate charges Rider incentives (1.20) (0.41) (0.48) Operating Profit/loss before (2.77) (0.93) (0.36) As a % of revenue corporate charges Take rate as a % of gross 18% 22% 22% bookings As a % of revenue Excess driver incentive 13% 7% 7% Take rate as a % of gross 18% 23% 27% Other cost of revenue 45% 45% 40% bookings Gross Profit Margin 42% 48% 53% Cost of Revenue 76% 62% 57% Operations and support 23% 17% 13% Gross Profit Margin 24% 38% 43% Sales and marketing 21% 17% 14% Operations and Support 29% 17% 16% Driver referrals 4% 3% 1% Sales and Marketing 70% 39% 24% Rider Incentives 16% 12% 12% Rider incentives 57% 15% 14% Operating Profit/loss before -22% 0% 11% Operating Profit/loss before -131% -33% -10% corporate charges corporate charges

Source: Uber, Lyft, DBS Bank As Uber does not breakdown costs attributable to each of Uber’s segments (namely: Ride-sharing, Uber Eats and Uber Freight), we have apportioned total costs on the basis of revenue contribution to perform our analysis on profitability per ride. Ride- sharing accounted for 92%, 87% and 81% of Uber’s topline over 2016, 2017 and 2018 respectively. On a consolidated basis, Uber generated a profit of US$980m, before corporate charges and depreciation and amortization in 2018. Uber reported US$3.03b in operating losses over 2018 (vs. US$4.08 in 2017). DBS Asian Insights SECTOR BRIEFING 75 14

Understanding the key elements driving profitability of ride-sharers “I’ve earned US$2on this ride - Uber” Revenue of ride-sharing companies is gross bookings less driver fees/ incentives and taxes

“I have US$2 off, so I will pay US$8” “Your fare is US$10” Incentives are provided to Referred to as “Gross bookings” riders to improve frequency of this is the total value of all rides rides and loyalty. This is one of taken through a ride-sharing thekeydeterminantsofprofitability platform as rider incentives account for a significant portion of expenses of ride- sharing companies and is discretionary

Key operating expenses Cost of revenue Includes platform running expenses, insurance and payment processing fees Operations and support Costs involved in providing rider support, driver onboarding, driver background checks Sales and Marketing One of the biggest line items. Includes advertising and promotional expenses Source: DBS Bank

Gross Bookings Akin to Gross Merchandise Value (GMV) of E-commerce players, Gross bookings refer to the total value of all rides taken through a ride-sharing platform. This includes the fare of the ride, applicable taxes, driver fees, tolls, etc. Gross bookings are driven by a combination of fare set by the ride-sharing company, number of active riders on the platform (penetration of ride-sharing services) and frequency of use by active riders. DBS Asian Insights SECTOR BRIEFING 75 15

Revenue and Take Rate Revenue is defined as the net proceeds realized by ride-sharing companies once the gross bookings are adjusted for fees and incentives paid to drivers and taxes. Take rate is the percentage of revenue realized through total bookings.

Cost of Revenue Direct costs of revenue largely comprises of insurance expenses (coverage by typical auto- insurance products cease when passenger vehicles are used for ride-sharing. Hence ride- sharing companies are required by regional laws to provide insurance coverage to riders/ drivers during service), payment processing fees and platform operating expenses (data centre hosting and colocation, mobile device and service charges).

Contribution Gross profit of ride-sharing business after accounting for attributable direct costs.

Operations and support Expenses involved in providing operational support to riders and drivers, driver onboarding expenses and expenses related to conducting background checks on drivers.

Rider Incentives Discounts and promotions offered to riders to keep them on the platform, improve frequency of rides and attract new riders. Rider incentives are classified under sales and marketing expenses. Rider incentives typically depend on the competitiveness of the ride-sharing marketplace and are a key determinant driving profitability of ride-sharing operators. This is so as rider incentives account for a significant portion of expenses of ride- sharing companies and is discretionary with ample room to be curtailed depending on the competitiveness of the marketplace.

Sales and Marketing Other advertising and promotional expenses involved in promoting ride-sharing services.

The appeal of ride-sharing as a business model is quite clear – the business generates c. 50% gross margins. However, c. 40-50% of revenue is attributed to other direct costs below the gross margin level with sales and marketing, and rider incentives accounting for the lion’s share.

Going by the example of Uber, which yielded an operating profit before corporate expenses, it is evident that once expenses below the gross margin level (particularly sales and marketing, and rider incentives) are controlled, ride-sharing can turn out to be a profitable business model.

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Path to profitability of ride-sharers – Line by Line analysis

Increase gross booking per ride Ride-sharer (US$) 2018 Improving take rate Fare increases, market share and This would be unsustainable penetration gains could drive as a higher take rate translates Gross Bookings 400% gross bookings up. However, this to lower pay for the drivers, may require higher S&M and rider Driver pay and 300% which could a). Increase driver incentives incentives. Revenue 100% churn and b). Cause regulatory concerns

Cost of Revenue 52% Reduce cost of revenue Lower Ops and Support There is room to reduce in platform Contribution 48% One of the more feasible related expenses with economies Operations and 15% ways of improving margins, of scale, while better negotiated support as with improving volumes contracts with insurance providers Sales and marketing 20% and potential digitisation and payment processors could Rider incentives 13% of customer support, driver drivedown costs of revenue. Operating Profit/ 0.0% background checks etc, Ops loss before corporate and support expenses as a % charges of revenue has room to come Lower Sales and Marketing and down. rider incentives Most feasible way of arriving at profitability. However, this would largely depend on the competitiveness of the market place and the market position of the ride-sharing operator. Lowering S&M and incentives could also have a knock on effect on Gross bookings as frequency of usage and penetration of ride-sharing could edge lower once the incentives are taken out. Source: Uber, Lyft, DBS Bank DBS Asian Insights SECTOR BRIEFING 75 17

What does it take to become profitable in the ride-sharing business?

he ride-sharing business model is banking on two macro-economic trends: greater penetration of autonomous vehicles (AV) on the road and lower car ownership to reach profitability. These two trends go hand-in-hand.

TIt is estimated that within 10 years of regulatory approval of fully autonomous vehicles (or by 2030) , c. 95% of all US passenger miles will be served by TaaS providers who will own and operate fleets of AVs resulting in private car ownership estimated to drop by c. 80%2.

The cost of operating a ride-sharing business is expected to dramatically decrease when AVs become common. This is due to:

1. Currently, the driver is the most expensive element of a ride

2. Autonomous car utilisation could be as efficient as 50%

3. AVs are expected to be able to minimise the number of accidents, which would decrease repair and insurance costs

The demand for private car ownership is also expected to take an additional hit as the younger generations are more familiar with subscription services and their disregard for car ownership as a status symbol. The advent of AVs could create major shifts in the ride-sharing market, paving way for much better prospects of earnings in the ride-sharing industry.

Drilling down to a more micro-level, we draw cues from our analysis of Lyft and Uber , the only ride-sharing companies that have disclosed financial and operational information publicly. Drawing insights from Uber, the only profitable ride-sharing operation we know of, we identify a few key elements that could help ride-sharing operators become profitable. DBS Asian Insights SECTOR BRIEFING 75 18

What does it take to build a profitable ride-sharing business?

Source: DBS Bank

Market Dominance A business is said to be enjoying a “network effect” when the product or service it offers becomes more valuable as more users start using said product / service. Most tech giants in the world like Amazon, Google and Facebook cite their user networks as the key source of their competitive strength. This further signifies the importance of the “network effect” for tech companies.

Ride-sharing heavily benefits from indirect-networking effect. Getting more riders onboard may not necessarily be beneficial for the riders, as there could be instances where riders crowd out each other (recall your experience of trying to hail a taxi on a stormy day). However, the more riders a ride-sharing facilitator has on its platform, the better its ability to attract a greater proportion of drivers. With more drivers, the user experience of the rider improves with lower waiting times and limited chances of crowding each other out, or encountering surge pricing (surge pricing is when the normal fare is adjusted upwards to reflect the gap in rider demand and driver supply), allowing the ride-sharing facilitator to attract more riders to its platform. With more riders, driver earnings on the platform also edge up as the number of trips improve, attracting more drivers to the platform. Hence, first mover advantage that allows a player to rake up riders and drivers and dominance in the market a player operates in can be considered critical success factors for ride-sharing players. DBS Asian Insights SECTOR BRIEFING 75 19

Network effect of ride-sharing platforms Liquidity Network Effect More Driver 5 drivers supply 1

More rides Lower wait per hour and More times and 4 higher earnings $ liquidity fares 2 potential for drivers

More 3 riders Source: Uber

In our view, a dominant position in key ride-sharing markets helps the ride-sharer in two key ways:

1. Minimise rider incentives

A dominant player can minimise its spending on rider incentives, and sales and marketing expenses. Instead, it can compensate for the lack of discounts and promotions through a better rider experience (lower wait times, highly rated drivers etc), lower fares and reduced probability of encountering surge pricing. Second tier players on the other hand, have to continuously churn out promotions and discounts to keep riders on the platform and compensate for a potentially poor rider experience.

2. Minimise driver incentives

With higher earnings derived from the platform supported by a higher rides per hour ratio, ride-sharing operators can also look into the possibility of easing incentives DBS Asian Insights SECTOR BRIEFING 75 20

offered to drivers on the platform. However, this would have to be done carefully and to a lesser degree than minimising sales and marketing, and rider incentives. This is so as regulatory issues could pop up if driver pay is trimmed substantially. Smaller players on the other hand, have to compensate for potentially lower hourly earnings of drivers, by offering higher driver incentives to prevent drivers from churning, which could exacerbate the situation of these players even further.

Uber has operations across 700 cities, and is a dominant player in most of the markets it operates in. According to data shared by the company, Uber controls > 65% of ride- sharing market share in North America, Latin America, Europe, Australia and New Zealand. This includes major ride-sharing destinations in these markets such as New York City, San Francisco, London and other key metropolitans. The company also claims to have > 50% market share in India and Middle East and North Africa (MENA) regions.

We believe Uber’s dominant position regionally and in some of the biggest ride-sharing markets globally is one of the key forces driving its path to profitability. For instance, sales and marketing, and rider incentives accounted for only 28% of Uber’s revenues in 2018, vs. 37% at Lyft. This was based on Uber’s statistics, which states that it controls < 35% of the North American market (Lyft claims to have a market share of c. 39% in North America). As Uber has secured a critical mass in its key ride-sharing markets in the US, it can secure customer loyalty through a better rider experience, availability in most major cities vs. limited availability of Lyft’s services in certain cities. This in turn allows Uber to start trimming its rider promotions in selected markets in the US without major user churn.

Uber’s strong network effect can also be seen through its operating statistics. Uber riders on average completed over c. 57 trips annually, c. 70% higher than the average number of rides of Lyft users. Uber drivers also completed as many as c. 1,338 trips in 2018, almost as much as 4 times the number of rides completed by a driver of Lyft on average.

Uber’s network effect is reflected in its operating statistics

in m Uber Lyft Number of riders 91 18.6 Number of drivers 3.9 1.9 Number of rides 5,220 619 Annually Rides per driver 1,338 326 Rider per rider 57 33 Riders per driver 23 10

Source: Companies, DBS Bank DBS Asian Insights SECTOR BRIEFING 75 21

Furthermore, we believe that Uber’s decision to divest its operations in China and South East Asia, where it was a second tier player struggling to secure adequate market share, may have been motivated by the lack clarity on a path towards sustainable profitability.

Uber dominates the global ride-sharing market

Russia and CIS ~38% of Yandex Taxi

Europe <1% MS >65% CP US & Canada China <1% MS ~15% of Didi >65% CP Middle East and Africa <1% MS India >50% CP Southeast Asia <1% MS ~23% of Grab >50% CP Latin America <1% MS >65% CP Australia/ New Zealand <1% MS MS: market share >65% CP CP: Ride sharing category position Owned operations Minority-owned affiliates Source: Uber

Whilst it’s difficult to define a level of dominance that allows a ride-sharer to become profitable, we estimate that at > 60% market share in a country, including the key metropolitan ride-sharing markets, ride-sharers would start to weave the benefits of the network effect, allowing the ride-sharer to gradually start curtailing its incentives and heavy advertising expenses, without major loss of market share. Trimming driver incentives however, would depend on the regulatory background in the region and would need to be done at a much slower pace than rider incentives.

However, despite the benefits of the network effect, we believe that the path to profitability of a dominant ride-sharer would greatly depend on the share of rider and driver incentives. Dominant ride-sharers with a much greater share of driver incentives than rider incentives are likely to take longer to reaching profitability, given the slower pace of curtailing driver incentives vis-à-vis rider incentives, to avoid an increase in driver churn. DBS Asian Insights SECTOR BRIEFING 75 22

Scale advantage Scale is another key driver, driving the profitability of ride-sharers. Like in any other industry, scale allows ride-sharers to realise economies of scale and yield better cost efficiencies. This in turn allows bigger ride-sharers to realise better margin profiles. Uber for example, enjoys gross margins of 53% vs. 43% at Lyft, largely stemming from Uber’s ability to realise better cost efficiencies at a gross margin level and a potentially lower cost structure in markets like Latin America, India and MENA.

A comparison of Uber’s better margin profiles clearly signifies the importance of scale in ride- sharing. We believe Uber’s better margin profile is derived from three key sources:

1. Insurance expenses

Insurance is one of the biggest cost items for ride-sharers. Uber uses a small number of insurance providers (Global insurance giant, AXA for example, provides coverage across UK, Europe, certain MENA regions and Hong Kong) to provide liability insurance across the globe. Uber also operates its captive subsidiary for insurance underwriting, in a small number of markets, allowing Uber to trim its insurance costs even further. Given the global scale of Uber’s operations, Uber is able to negotiate better terms on insurance contracts with its key insurance providers, allowing Uber to lower its insurance expenses as a % of revenue. Furthermore, liability insurance by ride-sharers is not a legislated requirement in some of the markets (especially emerging) that Uber operates in. Whilst, Uber provides liability insurance coverage in most of its markets, it is likely that in some markets Uber incurs no insurance expenses. This should allow Uber to improve gross margins derived from those regions.

2. Lower payment processing fees

Expansions across the globe is likely to have allowed Uber to secure better terms on payment processing from global payment processing giants given the higher volume of transactions. Uber also accepts cash as a mode of payment across 130 cities including India, Latin America and Africa, which to our understanding are not subjected to any payment processing fees (Uber’s fee on cash rides is deducted from the fare available to drivers on rides done through digital means, hence Uber does not incur payment processing fees on cash rides). News articles suggest that cash rides account for c. 65% of rides in India and c. 25% in Brazil, which should allow Uber to lower payment processing fees on a per ride basis. Lyft on the other hand is 100% cashless.

3. Lower platform related expenses as a % of revenue

Platform related expenses tend to be mostly fixed in nature and hence as operations in a region expands, platform expenses edge down as a percentage of revenue. DBS Asian Insights SECTOR BRIEFING 75 23

Uber’s scale allows it Gross Margin and OPS for 2018 to yield better margins and cost efficiencies

Source: Uber, Lyft, DBS Bank

At what scale would ride-sharers start to see the benefits of scale? Uber’s ride-sharing segment attained profitability in 2018, after raking up revenues of c. US$9.2 bn through c. 5.2 bn rides. Having embarked on an aggressive expansion plan to expand its reach globally, Uber’s ride-sharing segment is likely to have witnessed delays in reaching profitability as expansions typically translate to higher sales and marketing, and operational expenses at the initial stages of entry into new regions. Lyft on the other hand, is expected to generate an operating profit before corporate expenses from its ride-sharing segment over the next 2-3 years, with revenues of US$4.5-5 bn, with an annual ride count of c. 1.1-1.3 bn.

Drawing from our analysis of Uber and Lyft, we believe the scale required to attain profitability largely depend on two key factors:

1. If the ride-sharer is regional or country specific

2. The expansion strategy of the ride-sharer

Extrapolating from our analysis of Uber and Lyft, we estimate that Ride-sharers operating in South East Asia may need to generate c. US$1.3-1.7 bn in revenues before reaching profitability, provided that expansions within the region remain minimal.

In our analysis we assume, to reach profitability outside US, a country-specific operator would need to rake at least 30 m riders (marginally higher than the rider base of Lyft, when Lyft is expected to reach profitability), whilst a regional operator may need to secure at least DBS Asian Insights SECTOR BRIEFING 75 24

45 m riders (half of the rider base of Uber). We believe that regional operators would need a higher rider base to reach profitability, as regional expansions remain expensive and such expansions often tend to encounter greater competitive pressures.

Whilst our analysis is based on a series of assumptions, we do note that Grab, which is on track to generate revenues of US$2 bn over 2019, is already said to be profitable in certain mature markets (most mature markets for Grab include Malaysia and Singapore) in the region in its ride-sharing operations.

Uber’s network effect is reflected in its operating statistics

Scale to profitability Uber Lyft SEA India Revenue (U$ m) 9,182 4,078 1,729 834 Riders (in m) 91 27 45 30 Rides (in m) 5,220 1,049 1,778 1,192

Revenue per Rider (US$) 101 154 38 28 TAM population(in m) 4,100 328 642 1,339 TAM penetration 2% 8% 7% 2% Proportion of US fares 25% 18%

Assuming 45m riders to breakeven regionally and 30m riders to breakeven in a given country. Annual trip count per rider is set at 40. Source: Companies, DBS Bank

The expansion strategy also comes into play in driving a ride-sharers’ profitability. Typically, expansions into new cities require heavy marketing and promotional expenses, along with heavy rider and driver subsidies if the market is already served by a ride-sharing operator. Operational expenses including insurance and platform related expenses also tend to edge up at the early stages of entry into new cities. Expanding into new countries tends to be even more expensive at the initial stages. Whilst expansions and gaining scale is beneficial if the ride-sharer can secure a dominant position in these new regions, expansions inevitably would cause delays in the timing of reaching profitability for the ride-sharer.

Confronting arguments against the profitability of Ride-sharing

Several arguments have been laid out, suggesting that ride-sharing is not a sector prone to generate sustainable economic profits. We look at some of these arguments in depth and share our views as to why we think otherwise. DBS Asian Insights SECTOR BRIEFING 75 25

Multi-homing could lead to a perpetual need for incentives Multi-homing, refers to a situation in which multiple platforms are simultaneously used by users, as the cost of switching between platforms remains low or non-existent. For example, the cost for a rider or a driver of using both Uber and Lyft are bare minimal: the process is as simple as downloading and registering with the two apps.

Multi-Homing presents a real risk to the platform developer, as users often tend to make comparisons between the platforms before making their decision of which one to choose. In ride-sharing this means that riders may choose to go with the platform that gives them the best discount, while drivers could turn to the platform that allows them to yield the best hourly pay. When multi-homing is commonly prevalent, it could become challenging for a platform to generate a profit from its core business as incentives need to be handed out to platform participants to keep them within the platform.

Whilst, multi-homing remains a reality for ride-sharers, several other industries that witnessed this effect have successfully transitioned to profitability backed by their innovative strategies and dominance by a few key players. The E-commerce sector remains a prime example.

The cost of switching between E-commerce platforms remain as little as searching for the name of the platform in your web browser. However, Amazon and Alibaba have managed to emerge as winners in E-commerce regionally, leveraging on their early entry to the market, dominant network that was hard to be replicated and service innovations such as “Amazon Prime”, which improved customer loyalty to the platform.

In ride-sharing, the availability of a network itself becomes a key switching cost for platform participants, allowing the operator with the biggest network to flourish in the long run. For example, the cost of switching from a first tier ride-sharer to a second tier ride-sharer for a small discount could be longer wait times or poorly rated drivers, which may deter users from transitioning between platforms. Ride-sharers have also launched short-term initiatives such as incentives for drivers that complete a certain number of trips without cancellations or discounts for riders that complete a certain number of rides. These could also help ride-sharers improve loyalty and expand on their network dominance, at which point such incentives can be trimmed down.

Low barriers of entry translate to lower economic profits in the long run Ride-sharing industry relies on digital networks where all the core operations are algorithm driven. The service offering of ride-sharing is also a commodity: The service of taking a person from point A to point B, and offers little room for key players to differentiate based on their service offerings. Hence, theoretically a new player with the right algorithm and enough funds to secure riders and drivers should be able to disrupt the ride-sharing market. DBS Asian Insights SECTOR BRIEFING 75 26

Why would this not work? Despite the standardized service offering, the network of a ride- sharer is its key asset and the key barrier to enter the ride-sharing industry. Just like how it is difficult for a new E-commerce player in China to replicate the buyer / seller networks of Alibaba, which Alibaba has taken years to develop and invested tons of money in, a new player would struggle to build a similar network of that of a dominant ride-sharing operator, making it difficult to compete effectively. DBS Asian Insights SECTOR BRIEFING 75 27

Playbook for smaller ride- sharing operators

hile dominance and scale remain pivotally important in ride-sharing to attain profitability, we do believe smaller operators too can share the ride-sharing pie with bigger operators, with the right strategies in place. In the following section, we discuss three types of distinct strategies smaller ride-sharing W companies may opt for.

Playbook for smaller operators

Source: DBS Bank

Niche segmental play Smaller operators can gain dominance in niche sub-segments of the ride-sharing market that are typically underserved by bigger ride-sharing operators. Ola, the leading ride-sharing player in India, for example, managed to maintain its leading status in India despite Uber’s entry and disruption in 2013. This is partially so as Ola focused on three-wheelers (Auto- rickshaws), one of the most commonly used modes of transport in India. Ola also allowed DBS Asian Insights SECTOR BRIEFING 75 28

users of its platform to pay by cash, a feature that was not available at Uber until two years after its entry. This has allowed Ola to retain and develop its market share even further in India where credit card penetration even in major cities remain below c. 15%3. Auto- rickshaws contributed c. 15% to Ola’s topline in 20174, just three years after its launch and Ola enjoys a substantial share of the ride-sharing market in India as a result of its focus on niche market segments.

Selective regional focus Smaller players can also choose to focus on smaller regions / cities underserved by bigger players and limit their competitive play only to such areas. This would provide room for smaller players to curtail sales and marketing, and rider incentives in these regions and paving way for margin expansion and profitability.

Ecosystem play Ride-sharers inherently enjoy a few features coveted by many traditional players in today’s digital world:

1. Customers connect with ride-sharers purely via digital means, allowing ride-sharers to collect valuable user data

2. Customers of ride-sharing platforms are often the much sought after millennials and digital natives that are well versed with technology and are willing to try out new digital innovations

3. Ride-sharing platforms tend to be highly scalable

Data is the future of TaaS, and small ride-sharers too are poised to benefit depending on how they manage and share data within the mobility ecosystem. These key features offer a great avenue for ride-sharers with a sizeable following to leverage their platform to venture into other more profitable segments such as product distribution for traditional sectors, offering of data analytics as a service etc that could potentially offset losses from their ride- sharing business.

Prominent ride-sharers like Uber, Grab and Go-Jek have already started to position themselves as “Platforms” as opposed to simple-ride-sharing apps.

Uber’s ventures into meal-delivery through Uber Eats and logistics through “Uber Freight” and Grab’s ventures into payments and banking through Grab Pay and micro-loan facilities are some of the examples of ride-sharers venturing beyond transport in search of better profitability elsewhere.

Smaller players like Go Jek have gone even further, positioning themselves as “SuperApps” DBS Asian Insights SECTOR BRIEFING 75 29

catering to an array of different customer demands. Go-Jek for instance allows users to get maids, personal stylists, personal massage therapist and even auto mechanics on demand via its app.

Possibilities remain endless for ride-sharers bold enough to venture beyond their traditional sector, establish partnerships across sectors and explore possibilities of monetizing their greatest asset base: the ride-sharing platform. DBS Asian Insights SECTOR BRIEFING 75 30

Regulations: The biggest overhang for ride-sharers

ide-sharers remain highly vulnerable to regulatory changes. With the uptake of ride-sharing based on digital means, the number of passengers relying on traditional taxi services (where you get to the street and hail a taxi passing by) for their transportation requirements would come down. As this is likely to drive Rtraditional taxi services out of business, drivers are more likely to sign up with digital platforms like Uber and Lyft.

Under such circumstances, even though drivers are freelancers and not dedicated drivers of taxis, they rely on the platform enabler as their employer. Earnings from the ride- sharing platform becomes the sole source of livelihoods for these drivers, which makes it increasingly difficult for ride-sharers to improve their take rates (realized revenue as a percentage of gross bookings) as doing so would translate to lower pay for drivers. News of poor pay offered by ride-sharing services are plentiful in the media which has caught the attention of regulators around the globe. Regulators are mulling options ranging from fixating hourly pay/fees per ride for drivers to drawing regulation classifying drivers of ride- sharing platforms as employees of ride-sharing platforms. DBS Asian Insights SECTOR BRIEFING 75 31

Regulatory stance on ride-sharing across the globe

Country Rising concerns Regulatory changes

United States • 18% of Uber drivers in New York City • Minimum wage of drivers of ride- were eligible for food stamps offered sharers was increased to US$ 17.22 an to low-income households in 2018 hour vs the current average of US$ 11.90 in New York City

• 6 driver suicides were reported from • Issuance of new licenses for ride- 2017-18 sharers has been frozen for a period of one-year as the Taxi and Limousine Commission studies the ride-sharing industry.

Indonesia • Several protests in the country against • Fixed rate bands introduced for poor pay and low-rates charged by ride-sharers for motorbikes and cars. ride-sharing companies Motorbike ride-sharing rates should be between IDR 1,850-2,600 per km (vs. IDR 1,200-1,400 currently) and car rates set at IDR 3,500 - 6,000 per km depending on the zone of operation

• “No-Go” zones for ride-sharers – • Rates are to be reviewed every quarter Drivers of traditional taxis have set areas where ride-sharing providers are not allowed to operate in

United Kingdom • Uber drivers in London, Nottingham • Uber was banned in the city of London and Birmingham staged a protest and by “Transport for London” in 2017 a strike in 2018 demanding a GBP2 following concerns over failure to per mile increment and reduction in support government initiatives to commissions charged by Uber battle crimes in the city through sharing data and lack of corporate responsibility

China • Three passengers using the services of • Mandated that driver backgrounds DidiChuxinghave been murdered by and vehicles should meet standards their drivers between 2016-2018 established by the Chinese Ministry of Transport

• Commercial license (which has higher costs attached to it as opposed to private vehicles) are now mandatory for drivers signing up with Didi

Several jurisdictions • In several jurisdictions regulators are mulling if the drivers of ride-sharing platforms meet the definition of “Employees” and if not how the definitions can be altered

Source: DBS Bank, Various media reports DBS Asian Insights SECTOR BRIEFING 75 32

Drawing insights from E-commerce to Ride-sharing

e compare the business models of ride-sharing vs. E-commerce, the most established disruptive industry globally, to draw key insights over the trajectory of ride-sharers going forward.

WPrior to drawing parallels between the two sectors, we wish to highlight a few key differences between the two sectors at their early stages of growth:

1. E-commerce players benefited from much more diverse streams of revenue from early on

E-commerce players adopted different business models: marketplace and product, and generated revenues from a portfolio of service offerings including advertising, sales commissions, listing fees, data analytics etc. Ride-sharers on the other hand operate on a more uniform business model and generate revenues primarily through the taxi fares.

2. TAM for E-commerce is much broader

E-commerce could be extended to most retail product categories ranging from books, consumer electronics and clothing to fresh produceand groceries. TAM for ride- sharing however is comparatively limited. As mentioned earlier, ride-sharers primarily target short-distance private transportation needs of users, of which the TAM is considerably smaller.

However, despite these differences, we believe insights from the more matured E-commerce segment, would shed some light on the trajectory of the evolution of the ride-sharing industry.

In the heydays of E-commerce, dominant players like Amazon and Alibaba reported high double digit growth in the value of goods transacted through their platforms (GMV) supported by improving penetration of E-commerce and market share gains from smaller operators. Dominant players like Alibaba still record growth 25%+ growth on a year-on- year basis on GMV on its Chinese retail platforms. DBS Asian Insights SECTOR BRIEFING 75 33

Ride-sharers too have witnessed rapid growth since the start of the ride-sharing model back in 2010. With the penetration of ride-sharers in most markets still remaining below 1%5 of total passenger vehicle trips of less than 30 miles, we believe ride-sharers are set on a similar growth trajectory to the growth in GMV E-commerce players witnessed in their early days.

Growth in gross Gross bookings and GMV growth comparisons bookings going strong

Source: Companies, DBS Bank

When E-commerce was introduced, it offered customers the convenience of shopping from home, access to a wide range of products unlikely to be available through a typical retail store and access to similarly priced, if not cheaper, products. These features were key drivers behind the uptake of E-commerce that set penetration and GMV of E-commerce on a trajectory of super fast growth.

Ride-sharing, we believe shares most of these features of E-commerce. Ride-sharing offers customers the convenience of hailing a ride to their doorstep and allows customers to choose from a variety of riding options that were previously unavailable (Shared rides or rentable scooters). Ride-sharing also offers their services at a similar price, if not cheaper to those of traditional private means of transportation such as taxis. We believe these features of ride-sharers would continue to drive the penetration of ride-sharing over the medium term, presenting a steady growth trajectory in gross bookings for ride-sharers.

Rising congestion in metropolitan cities around the world, outdating public transportation infrastructure in major cities, growing proportion of millennials and digital natives entering the work force, would further support growth in penetration of ride-sharing as a means of transport, setting the sector on a trajectory of super-fast growth akin to that of E-commerce. DBS Asian Insights SECTOR BRIEFING 75 34

However, the quantum of revenue that can be derived regionally is lower in comparison for ride-sharers in comparison to E-commerce, as there is a physical limit to the number of drivers and riders that can provide and use ride-sharing services in a given region and the ride-sharer’s growth in the region is limited by this. The ceiling for growth for E-commerce players on the other hand, is much higher, as E-commerce platforms can be easily scaled up to include more products and services.

Regulatory restrictions to limit take rate growth for ride- sharers Ride-sharers enjoy much better take rates than their E-commerce counterparts, as GMV, comprising of the value of all goods traded through an ecommerce platform, often tends to be significantly higher than gross bookings, which comprises of fare, taxes and driver pay.

Take rate for ride- Take rates for ride sharers vs. E-commerce sharers is almost 5x higher than E-commerce

Source: Companies, DBS Bank

However, going forward we believe there is limited headroom for ride-sharers to improve their take rates substantially. Unlike E-commerce, which remains laxly regulated with ample head room to improve its GMV take-rate (take rate of marketplace operators depend on commissions, and the uptake of other services such as advertising, which remain less vulnerable to regulations), growth in the take rate of ride-sharers is likely to be capped by regulations.

In E-commerce, sellers on the platform often maintain a presence both online and offline, and any attempt by the E-commerce platform to improve its take rate, by way of increasing commissions or rates on advertising for example, are unlikely to significantly impact the profitability of sellers on E-commerce platforms. Regulatory environment surrounding E-commerce also is fairly lax, providing ample head room for E-commerce players to improve their take rates and profitability if need be. DBS Asian Insights SECTOR BRIEFING 75 35

Ride-sharing on the contrary is quite different. Most drivers on ride-sharing platforms are dependent on the earnings made through the ride-sharing platform as their livelihoods. Any attempt by ride-sharers to improve their take rate substantially would come at the cost of lower pay for drivers, which at some point could be regulated. News of inadequate pay made by drivers on ride-sharing platforms are plentiful and has caught the attention of regulators around the globe, who are mulling fixating driver pay rates or contemplating the recognition of drivers as employees of ride-sharers. Regulations on driver pay could cap or even reduce the take rate of ride-sharers, impacting revenues and profitability adversely. A classification or drivers as employees could be even worse resulting in heavy staff costs for ride-sharers, substantially impacting profitability.

Can Automated Vehicles (AVs) increase the take rate of ride-sharers? Take rates for ride sharers vs. E-commerce The take rate of a ride-sharing business is expected to increase significantly when AVs become common since driver pay is the most expensive element of a ride at present, accounting for c. 75% of the total fare of a ride. All major ride sharers are in the process of developing and testing AVs. However, the likes of Waymo (Alphabet’s self-driving arm) and Cruise (General Motors), that lead the AV race are already trialing ride-sharing services with their self-driving technologies, which could present a threat to existing ride-sharers. Automobile manufacturers like Tesla have also expressed an interest in offering ride sharing services through its vehicles as announced recently.

Progress in the self-driving space is measured by the average number of miles driven before a manual override by a human driver is required. Waymo is almost 2x ahead of its closest competitor by that metric.

Milles per manual intervention Waymo 11,018 Cruise 5,205 Zoox 1,923 Nuro 1,028 Aurora 82 Toyota 2.54 Benz 1.47 Apple 1.15 Uber 0.35

Source: State of California department of motor vehicles DBS Asian Insights SECTOR BRIEFING 75 36

We believe ride-sharing should be compared against marketplace E-commerce operators (players like Alibaba that simply provides the platform to facilitate E-commerce transactions without engaging themselves directly in product sales) as this model of E-commerce closely resembles the business model of ride-sharers.

Gross margin profiles Gross margin comparison between ride-sharers and E-commerce operators tend to be similar but ride-sharers are likely to witness lower profitability relative to E-commerce players

Gross margins for Alibaba are for China retail commerce segment and is based on direct costs apportioned on the basis of revenue. Source: Companies, DBS Bank

Ride-sharers enjoy slightly lower margin profiles vis-à-vis their E-commerce counterparts, largely owing to the high direct costs, such as liability insurance involved in the provision of ride-sharing services.

However, the major difference in ride-sharing comes below the gross margin level, where operating expenses as a percentage of revenue tends to far exceed those of E-commerce players. One of the key differences stem from sales and marketing, and rider incentives which together account for 30-40% of a ride-sharer’s revenue vs. c. 5-10% of more mature E-commerce operators. Higher sales and marketing for ride-sharers stem from two key sources: Rider incentives and higher advertising expenses.

As ride-sharing is a highly competitive marketplace, with most popular cities covered by at least two ride-sharers, discounts and promotions need to be continuously offered to riders to improve rider frequency and loyalty. E-commerce players too, in their early days incurred heavy promotional and discount charges to attract customers to their platforms. This remains a feature of some of the emerging E-commerce markets like Indonesia, where both domestic and regional players incur heavy losses on customer promotions and subsidies offered in a bid to gain market share. DBS Asian Insights SECTOR BRIEFING 75 37

Potential easing of competition in major ride-sharing markets over the medium term, as dominant ride-sharers start to monetize their platforms, should provide room to curtail rider incentives gradually, akin to the trajectory witnessed by the E-commerce sector as it matured.

High costs on advertising and promotions also remains a key feature among ride-sharers. Gross margin comparison between ride-sharers and E-commerce operators Given the early growth stages ride-sharing is in, ride-sharers continue to expand into new cities and territories, which requires heavy advertising and promotional expenses to gain customer awareness. E-commerce on the other hand, remains a more matured industry and enjoys the indirect benefit of advertising and promotional campaigns conducted by sellers on the platform, allowing E-commerce companies to reduce their spend on advertising and promotions.

Direct operating expense as a percentage of revenue

Sales and marketing expenses for Ride-sharers include rider incentives. Operations and support expenses for E-commerce players include: JD.Com - fulfillment and technology expenses, Alibaba – Product development expenses Source: Companies, DBS Bank

Hence, we believe that ride-sharing in the long run would be a less profitable business model than E-commerce in the long run. Lower profits would largely stem from a). Lower limit on the quantum of revenue that can be derived regionally b). Limited headroom to improve take-rates owing to regulatory pressures and c). Lower operating margins stemming from the need to bear sales and marketing expenses. DBS Asian Insights SECTOR BRIEFING 75 38 DBS Asian Insights SECTOR BRIEFING 75 39 DBS Asian Insights SECTOR BRIEFING 75 40

Appendix

Key ride-sharers around the world

In this section, we are focusing on Didi, Grab, Go-Jek and Ola since we have already discussed about Lyft and Uber in detail.

Didi Didi Chuxing, founded in 2012 and headquartered in China, offers a full range of app-based transportation options for 550m6 users and 31m driver in c. 1,000 cities7, including Taxi, Bus, Designated Driving, Enterprise Solutions, Bike Sharing, E-bike Sharing, Car Rental and Sharing, and food delivery services. Didi first acquired Bumblebee DaChe in 2012, quickly followed by strategic alliances in India (Ola ride service) Southeast Asia (Grab), and North America (Lyft). But Didi’s most notable move was when it joined forces with KuaiDiDaChe in 2015, which at the time was the other main frontrunner in China’s crowded ride-sharing sector. The Didi-Uber battle officially commenced in 2015with both Didi and Uber offering record subsidies to customers, resulting in a frenzy of ridiculously cheap and sometimes free rides. Subsequently, Uber bowed out of China in August 2016 in a US$ 35m deal in which Didi acquired Uber China and Uber received a 5.9% stake in Didi. Currently, DiDi provides ride-sharing services in Brazil under the 99 brand, operates DiDi-branded mobility services in Mexico and Australia, and provides taxi-hailing service in Japan through a JV.

Didi has raised US$ 20.6bn to date via 17 funding rounds8, and is also the only company to receive backing from all three of the biggest corporate giants in China; Baidu, Alipay, and Tencent (BAT). The latest financial results for Didi point out to a CNY 10.9bn (US$ 1.6bn) loss for Didi during FY189.

Grab Grab, founded in 2012 and headquartered in Singapore, operates in 8 countries covering c. 500 cities offering services such as private car services (GrabCar & GrabShare), motorcycle taxis (GrabBike), social carpooling (GrabHitch), last mile delivery (GrabExpress & GrabFood), bus & shuttle services (GrabCoach & GrabShuttle), cycling services (GrabCycle), an ideas incubator (GrabVentures), as well as a fintech platform (GrabPay, GrabRewards, GrabBenefits, Loans and Lending Services, Insurance). In March 2018, Grab merged with Uber’s Southeast Asian operations putting an end to an intense price war.

Grab has raised US$ 8.8bn to date via 24 funding rounds from 40 investors with SoftBank Vision Fund and Central Group of Company being the most recent investors10. The latest financial results for Grab indicates revenues of c. US$ 1.0bn for FY18 and the company expects to double its revenues in FY1911. DBS Asian Insights SECTOR BRIEFING 75 41

Go-Jek Go-Jek, founded in 2010 and headquartered in Indonesia, provides a range of transport, instant courier, shopping and delivery, food delivery, financial, fintech, and technology services. Even though Go-Jek has moved beyond ride-sharing to offer fintech and other services in Indonesia, the ride-hailer has not still made a significant headway in regional play. Go-Jek expanded to Vietnam, Thailand and Singapore in 2018 while the Philippines is a work in progress following a setback after it was denied an operating permit in January 2019.

Go-Jek has raised US$ 3.1bn to date via 9 funding rounds from 24 investors with Astra International and Google being the most recent investors12.

Ola Ola, founded in 2010 and headquartered in India, serves c. 125 cities across India, Australia, New Zealand, and the UK. In January 2018, Ola extended into its first overseas market, Australia, and to New Zealand in September 2018. In March 2019, Ola began its UK operations introducing Auto Rickshaws in UK. In addition to its core ride-sharing business, Ola has also diversified into Ola Financial Services, Ola Skilling, Ola Electric and FoodPanda, making key acquisitions like Ridlr and HolaChef and strategic investments, such as, in the dockless scooter sharing network, Vogo.

Ola has raised US$ 3.8bn to date via 22 funding rounds with a variety of venture capitalists including Softbank having large stakes in the company13. In FY18,despite its intense battle for market leadership in the Indian market against Uber, Ola has more than halved its consolidated losses to INR 28.4bn (US$ 406m) compared with consolidated losses of INR 49.0bn (US$ 700m) in FY17, while growing revenue by c. 61% y-o-y to INR 22.2bn (US$ 318m)14.

Key financial and operational metrics of ride-sharers around the globe

Grab Go-Jek Uber Lyft Ola Annual rides (in m) 2,409 1,200 619 1,000 5,220 Active Users (in m) N/A 25.0 91.0 18.6 N/A Active Drivers (in m) 2.8 1.0 3.9 1.9 1.0 Annual Revenue (FY19 for Grab) (in US$m) 2,000 N/A 11,270 2,157 318 Valuation (based on latest funding rounds 14,000 9,500 85,000 20,696 6,000 and latest market cap for Lyft) (in US$m) EV/Revenue 7.0 N/A 7.5 9.6 18.9 Total funds raised (in US$m) 8,800 2,000 24,200 4,900 3,800

Source: DBS Bank, Various Media reports DBS Asian Insights SECTOR BRIEFING 75 42

References

1. https://www.reuters.com/article/us-softbank-autos-investments-insight/inside-softbanks-push-to-rule-the-road-idUSKCN1RO049 2. https://medium.com/siili-automotive/ride-sharing-replacing-car-ownership-fe8e11952fde 3. https://brandalyzer.blog/2017/06/11/credit-card-penetration-in-india/ 4. https://economictimes.indiatimes.com/small-biz/startups/uber-is-no-match-for-auto-mated-ola-here/articleshow/58817104.cms?from=mdr 5. Uber’s IPO prospectus 6. https://www.didiglobal.com/about-didi/about-us 7. https://craft.co/didi-chuxing/metrics 8. https://www.crunchbase.com/organization/didi-dache#section-funding-rounds 9. https://techcrunch.com/2019/02/14/didi-reported-1-6-billion-loss/ 10. https://www.crunchbase.com/organization/didi-dache#section-funding-roundshttps://www.crunchbase.com/organization/grabtaxi#section- funding-rounds 11. https://www.bloomberg.com/news/articles/2018-09-06/ride-sharing-giant-grab-expects-to-double-revenue-in-2019 12. https://www.crunchbase.com/organization/go-jek#section-investors 13. https://www.crunchbase.com/organization/ola#section-overview 14. https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/ola-losses-narrow-to-rs-2842-crore-for-fy18-revenue-zooms-61/ articleshow/67778745.cms DBS Asian Insights SECTOR BRIEFING 75 43

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