In his second quarter letter to investors, Dan Loeb, founder of hedge fund Third Point Partners, disclosed that he’s investing in China’s answer to Uber, Didi Chuxing.
You may recall that Uber has had some difficulty penetrating China’s market, where Didi reigns supreme. Jean Liu, the company’s president, called Uber’s efforts to attract Chinese customers “cute,” which has to smart.
With this investment, Loeb is joining China’s tech behemoths Alibaba and Tencent as well as Apple, who have also invested in Didi. He reasons that China is the perfect market for ride sharing since there are tons of people packed into dense cities, and a fairly low number of them own cars: China has “130 vehicles per thousand people (vs 800 in the US and 500‐700 in Western Europe),” he noted.
From the letter:
“As a result of these tailwinds, China’s ride‐sharing sector is rapidly capturing market share from both public transport and private car ownership. We forecast that the Chinese ride‐sharing market will expand from its 2015 volume level of less than two billion annual trips to ~25 billion annual trips by 2019, representing a market size of ~$100B, or ~9% of the Chinese urban transportation market.
Given the “winner‐take‐most” characteristics of ride‐sharing (which result from supply‐side economies of scale and network effects) and Didi’s already‐dominant position in the Chinese market (~80% market share today), we believe Didi can capture the vast majority of this substantial market opportunity. As a result, we expect Didi to grow into one of China’s largest internet companies, resulting in significant equity appreciation over the next five years.”
Third Point is up 4.6% for the second quarter, versus the benchmark S&P 500’s 2.5%. Year to date, the fund is up 2.2% versus the S&P 500’s 3.8%.