Ride-hailing giant Didi revealed a glimpse at its commission rates and cost structure on Monday in a question-and-answer post published on its platform to address criticism for its cash-burning business model.
Nearly one-third of its commission revenue was spent on driver subsidies over the fourth quarter of 2018. Operating costs were roughly equivalent to 21% of total fare revenue from its private car hailing business during this time, Chen Xi, executive president of Didi’s Ride-sharing Business Group, said on Monday. Meanwhile, fourth quarter average commission rate was 19% of fare revenue, and the 2% difference was recorded as operating losses.
Chen stressed the continued losses could not last long, promising more efforts on cost reduction in order to “run businesses in a sustainable way.”
Additionally, driver subsidies accounted for 7% of total fare revenue during the same period, the company said, explaining that driver incentives were a critical tool to meet market demand during the peak times.
This was the first glimpse of Didi’s internal finances as questions mount about its fiscal viability as well as safety on its platform. According to an internal file obtained by Chinese media, the Chinese ride-hailing firm recorded a loss of RMB 10.9 billion (roughly $1.48 billion) in 2018, nearly five times the reported $400 million in losses booked in 2017.
Didi had expected 2018 to be a profitable year, according to Chinese media reports in March 2018 citing industry sources. But by October, following the murders of two female passengers in May and August, its priorities shifted to security, according to a corporate executive cited by the Wall Street Journal.
Global ride-hailing giants share a common problem of huge losses despite robust commission revenues, as competition in the worldwide ride-hailing market remains intense. Uber reported $3.03 billion in operating losses in 2018, and has run at a loss for three consecutive years beginning in 2016, according to its SEC filing from earlier this month. Its core ride-hailing business had a 22% commission rate over the past year, and the US ride giant continues to offer subsidies to drivers to gain market share around the world.