Apple Bets a Billion on China’s Uber, Didi Chuxing

Apple Inc. (AAPL) has invested $1 billion in Didi Chuxing, China’s dominant ride-sharing service, which was formerly known as Didi Kuaidi and is often compared to its rival Uber.

A Change for Apple

Apple’s CEO Tim Cook told Reuters, “We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market,” adding, “we believe it will deliver a strong return for our invested capital over time as well.” In a statement, he said Didi “exemplifies the innovation taking place in the iOS developer community in China.”

Apple has struggled in China in recent months, following a run of rapid growth in the country. The company’s sales fell 13% year-over-year to $50.6 billion in the first quarter – its first quarterly revenue drop in 13 years – with China, Hong Kong and Taiwan accounting for $4.3 billion, or 58%, of the decline. (See also, Chinese Rivals Will Grab Apple’s Share of Smartphone Market.)

Apple’s investment in Didi may also be related to its efforts to develop a self-driving car using self driving car technology, which have reportedly hit a rough patch for the moment, including the departure in January of the project’s leader Steve Zadesky. Uber is investing heavily in self-driving technology. If this type of technology does go through, risk management software, that can be found at sites like https://www.lytx.com/en-us/resources/articles/risk-management-solutions, will need to be heavily incorporated to make sure the passenger and car are safe on the roads. (See also, Google, Uber, Lyft and Automakers Join New Self-Driving Coalition for Safer Streets.)

Finally, Apple’s investment in Didi marks a departure from the norm for the company, which unlike Alphabet Inc. (GOOG, GOOGL) and Microsoft Corp. (MSFT) does not normally take minority stakes in other companies. Assuming this investment is not a one-off, funding startups could be a way for Apple to put its hoard of cash to use. The company has declined to repatriate billions in foreign earnings due to the impact on its tax bill.

Didi versus Uber

Didi Chuxing is valued at over $20 billion, according to an unnamed source quoted by Reuters. According to the company, it controls 87% of the ride-sharing market in China. Uber, which is valued at $68 billion, is engaged in fierce competition with Didi for market share. Both companies burned around $1 billion in cash in 2015, and both are attempting to gain a leg up amid a complex web of investments and partnerships. (See also, Uber: Motoring Into Emerging Markets?)

Didi, which is funded by bitter rivals Alibaba Group Holding Ltd. (BABA) and Tencent Holdings Ltd. as well as the Chinese government, has partnered with Uber’s rivals in other markets, such as Lyft in the U.S., Ola in India and Grab in Southeast Asia. Tencent’s WeChat, a messaging app with 500 million active users, has reportedly blocked Uber. (See also, Didi Kuaidi: China’s Uber Partners With Lyft.)

Uber is fighting back, however. It has raised funding from a third internet giant, Baidu Inc. (BIDU) and partnered with Alibaba’s AliPay to allow Chinese tourists to pay for their rides with yuan anywhere in the world. Alibaba is apparently comfortable with this arrangement despite its investment in Didi. (See also, Uber, Alibaba Form Worldwide Payments Partnership.)

Still, Uber lags behind in China. Didi completed 1.43 billion rides in 2015, according to the company, more than Uber has completed worldwide since its founding in 2009.

Originally Posted at Investopedia: Apple Bets a Billion on China’s Uber, Didi Chuxing (AAPL) | Investopedia

— Investopedia

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