Apple’s $1billion in Didi: What analysts are saying—updated

Excerpts from the notes we’ve seen.

Neil Cybart, Above AvalonIt felt like Silicon Valley took a collective pause Thursday evening when news broke that Apple bought a $1 billion stake in Didi Chuxing (Didi). This is a big deal not just for Apple, but also for the tech and auto industries. Apple is not a company that casually makes these types of investments without clear reason and strong motivation. The deal reportedly took place over the span of 22 days although the two companies had been talking to each over for over a year. As we discussed last week (talk about good timing), there were signs that Apple was going to pivot into the auto industry. This new Didi investment officially marks the beginning of that pivot. We are entering a new Apple era.

Katy Huberty, Morgan Stanley: We see positive near- and long-term implications from Apple’s unexpected $1B investment in Didi Chuxing. Apple can learn more about the services business, especially in an important market like China, and maybe one day deploy its own cars as-a-service. (See Apple’s $1B in Didi as a transformative deal.)

Benedict Evans, a16z:  Lots of Kremlinology here—there may be a political angle (pleasing the government). But Apple also has an army of people working on cars and autonomy—getting data (and especially training data for machine learning), taking an option for a potential future partnership, and of course stopping Google getting there first are all good uses for 0.5% of Apple’s cash. It is interesting that they chose to do this with Didi rather than Uber (which is competing aggressively with Didi in China), and one would presume that this precludes an Apple investment in Uber as well. Lots to think about here, and not all the moving parts are visible yet.

Ben Thompson, Stratechery: Ultimately, that Apple is investing in Didi to demonstrate its commitment to China and to curry favor with the government (itself an investor in Didi) is by far the Occam’s Razor explanation. Nothing else makes sense relatively speaking. The main two questions I have are: 1) Has Apple been contemplating this move for a while, or did the blocking of the iBooks and iTunes Movie Stores jar them out of complacency? 2) Was this Apple’s idea or one that was “strongly suggested” to them by the Chinese government? To that end, and related to question one, was the blocking of iBooks and the iTunes Movie Stores a warning shot? Apple investors should certainly hope that this was Apple’s idea.

Gene Munster, Piper Jaffray: Last night, Apple confirmed a $1 billion investment in Chinese ride-sharing company and Uber China competitor Didi Chuxing. According to multiple media reports, Didi Chuxing is the market leader in China with potentially 90% of the ride-share market. We view the move from Apple as surprising given that they have no real history in venture style investments, but believe that given their cash position and intentions in China, the investment makes long-term sense. Further, we believe the investment could help Apple guide its car efforts, Project Titan, as they better understand the future of transportation.

Ophir Gottlieb, CML: The story is much bigger than an investment in one of China’s crown jewel start-ups. After a wonderfully open door policy to Apple for several years, all of a sudden a cacophony sounded when China ordered the closure of iBooks Store and iTunes and Movies just six months after the services launched in China. Next up, in a pretty odd story, China did not uphold a Trademark case for Apple, where another company was allowed to use the term “iPhone” for accessories. Those moves together scared billionaire Carl Icahn totally out of the stock. He was ever so clear to note that the bullish thesis for Apple was still there, but the China risk was so large that he had to sell his stake (at a $2 billion gain). This move for Apple was more strategic than monetary… Apple has caught everyone off guard again, and does have some of the technology market tongue tied… again.

Bob O’Donnell, TECHnalysis ResearchThis investment shows they are thinking not just about cars but business models around transportation, and that is a very encouraging and interesting sign.

Ben Bajarin, Creative Strategies: From a Chinese consumer perspective, having the backing of Apple (along with Alibaba and Tencent who are also investors) can only help strengthen Didi’s position. Apple can more tightly integrate services like maps, Apple Pay, maybe even have Apple Music playing in the background (once they get the service restored) and expose 11 million riders a day to more of an Apple experience. Given the Chinese consumer affinity toward Apple, I think this will only further give consumers a reason to choose Didi over Uber.

Carolina Milanesi, Creative Strategies: It is well known that China wants foreign vendors to spend money in China, not just make money. This is an excellent way for Apple to do exactly that. The ROI on the investment has a different form from a pure source of insight into Chinese consumers to a platform for Apple Pay to, further down the line, a testing ground for autonomous cars.

Jan Dawson, Jackdaw Research: 

  • It’s a great way to use some of that offshore cash that’s sitting around.
  • There’s obviously a car connection, but it’s pretty tenuous. It’s not like whatever car Apple is working on could be used by Didi in China. There’s likely to be a fairly significant mismatch cost wise there.
  • Apple doesn’t do corporate VC or anything like that. So this is a huge departure from their past pattern. It isn’t an acquisition – the valuation is around $25 billion at this point so this is a very small share. So they don’t benefit directly from the technology or revenue. On the other hand, if they did acquire Didi, it would be a fascinating extension of the services strategy. But again, a huge departure from Apple’s history.
  • Car wise, this does give Apple new insights into driving in China, which could be useful for other things – maps, self-driving cars, etc.
  • This also gets Apple deeper into China in ways that could be beneficial for leverage, for other services in China, and so on.

Jack Kent, IHS TechnologyTaxi apps provide a number of strategic opportunities for mobile ecosystems. Unlike many other mobile apps, taxi apps are able to quickly establish a billing relationship with their audience as they require an immediate transactional relationship with users. Ride-sharing is often only the first step. Once these apps have started charging users for the journeys they take, they can then use this payment information as a platform for a range of other services, such as deliveries and then wider mobile commerce services. These apps also capture a huge amount of valuable contextual user data… Taxi apps can also be a way into developing a wider automotive strategy and this investment is further evidence of Apple’s interest in transportation, and perhaps the automotive market, beyond its current Apple Maps software.

Chi Tsang, HSBC: It gives their users another reason to use Apple wallet. If it says, for example, ‘We’re launching Apple Wallet in Beijing and you can use it to order Didi and get a five kuai (yuan) discount.’

Nicole Peng, Canalys: Apple right now in China is still being seen as a smartphone provider. Less people know Apple as a service provider. The potential cooperation with Didi …could increase consumer awareness of using Apple for other services.

Sarah Lacy, PandoTo understand the significance of the deal, you have to consider quite a few factors. Firstly, there are some 800 million urban Chinese. Of those who hail cars using their smartphones—or may do so in the future—a large percentage use iPhones. An even larger number use  Tencent-owned WeChat, and/or pay with Alibaba (part-)owned Alipay. Those ties, plus Apple’s interest in self-driving cars, and Apple’s existing make-or-break business interests in China, would be enough to explain the deal. But there is of course a much bigger reason why Apple and Didi were so keen to join forces: The deal is an incredible “f… you” to Uber…

Patrick Moorhead, Moor InsightsAfter all the hints about the service business and what they would like to do in the future, it’s all starting to fit together.

More as they come in. Meanwhile, from the principals:

Tim Cook, Apple CEO:

  • Didi exemplifies the innovation taking place in the iOS developer community in China. We are extremely impressed by the business they’ve built and their excellent leadership team, and we look forward to supporting them as they grow. [Didi press release]
  • We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market. Of course, we believe it will deliver a strong return for our invested capital over time as well. [To Reuters]

Jean Liu, Didi president:

  • The first time we met with Mr. Cook, we shared with him a joke. Our company’s legal name is called little orange. We figured a company named after a fruit could always achieve something big. [In a conference call Friday morning]
  • We wouldn’t be here today if it weren’t for burning cash. [At an industry forum Last September]

See also: Why has Apple tripled its R&D spending to $10 billion? Neil Cybart makes the case for a car.

6 Comments

  1. Richard Wanderman said:

    Brilliant. This is the kind of investment I want to see Apple make more of.

    1
    May 13, 2016
  2. Larry Fritzlan said:

    Hummm. . .

    Apple makes a car. Apple networks it altogether. Apple has its own Uber program.

    Electric, solar powered, start to finish, Apple Ride.

    0
    May 13, 2016

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