Tiger–DDonDaojia Date:

SAVEDATE\@"yyyy-MM-dd"

2015-04-22

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BDAUpdateonDaojia

ExecutiveSummary

Daojia’sefficiencyinoperationandexpansionwasfarfromsatisfying.

Daojia’sordernumberwasstilllimitedafterfouryear’soperation(dailyorderwaslessthan20K),however,thenumberofordersandactivecustomershavealreadybeenstagnantinrecentmonths

Daojia’sexpansioninnewmarketsisthoughttobeinefficient,asitfailedtogetasatisfyingmomentuminaccumulatingmerchants,customersandorders.Especiallyin3ofthe5newlypenetratedmarkets(Nanjing,ChangzhouandWuxi),Daojiaonlyattractedhundredsofcustomersandgeneratedlessthan500monthlyordersafter8-month’soperation.

Userretentionispoor.1-monthactiveuserretentionrateisonly28%,considerablelowerthanBaiduWaimai’sfigure60%

Users’usingfrequencyhasnotbeenmuchimproved.Acustomeronlyput3.4orderseverymonth,andwenoticedthatthefiguretendtobestablealongwiththeuserlifecyclewithoutanyimprovement.

Moreover,Daojia’scourieraveragelyonlyconducts~10ordersperday,alevellowerthanothermajorplayers.WethinkthesituationwouldbelargelyattributedtoDaojia’sinefficientmanualorderdispatchingsystem.Howeverwedonotthinktheto-be-launchednewdispatchingsystemcanhelpimprovetheefficiencysignificantlygiventhelimitedtechinvolvedandthecurrentlysmallordernumber.

Moreover,basedonourcalculation,thereislittleopportunityforDaojiatobeaprofitablebusinessgivenitslimitedorderscaleandlowoperationefficiency.

Currently,Daojiastillsufferslossformostdeliverystations.

Anoverallbreakevencasecallsforeverycouriertodeliveryabout25orderseveryworkingday,alevelwhichwethoughttoohightobeachievableforDaojia.

Also,wehavenotseenDaojiaownsanycompetitiveadvantagesovermajorplayerssuchasBaiduWaimai,ElemeandMeituan.Astheseplayersaredeterminedtostepintothemid-andhigh-endsegment,wethinkDaojiawillbeundergreatcompetitionpressure

KeyFindings

Daojia’sefficiencyinoperationandexpansionwasfarfromsatisfying.

ThenumbersofDaojia’smonthlycustomersandmonthlyordershavebeenstagnantinrecentmonths.ThehistoricalmomentumwasalsonotstrongandthecurrentscaleofDaojiaisstillsmall.

NumberofDaojia’sMonthlyOrders,Apr14-Mar15

NumberofDaojia’sMonthlyCustomers,Apr14-Mar15

Daojia’s1-monthuserretentionisonly28%,andthefigurewitnessescontinuousdownturninthefollowingmonths.WethinkDaojiaisnotgoodatremainingusers,andsuchsituationwouldincreasethecostofacquiringasingleretaineduser.ItalsoimpliesthatDaojia’suserbaseexpansionisconductedinaveryinefficientprocess.

Forcomparison,BaiduWaimai’smanagementclaimedtheir1-monthretentionrateisabout60%

AverageUserRetentionRateofDaojia,Jan13-Mar15

Months

1

2

3

4

…

12

…

24

…

26

RetentionRate

28%

21%

18%

17%

…

13%

…

10%

…

9%

User’susingfrequencydoesnotwitnessanyimprovementalongwiththeuserlifecycleontheplatform.

Althoughthereisatwofoldincreaseafterthemonthwhenuserwasacquired,ithastobeaddressedthattheuserfrequencyinmonth0istheaverageforallnewlyacquiredusers,includingthoseacquiredatthebeginningofthemonthandthoseacquiredattheendofthemonth.Sothecomparablemeasurefornewusersacquiredinthecurrentmonthshouldbe3.4times(1.7x2),basicallyconsistentwiththeuserfrequencyinthefirst12months.

RetainedUserFrequencyofDaojia,Jan13-Mar15

Months

0

1

2

…

12

…

24

…

26

UserFrequency

1.7

3.2

3.2

…

3.5

…

3.7

…

3.5

Meanwhile,Daojiawitnessedalowerticketsizethantwoyearsago.Andthemanagement’splanmaydragthefigureevenlower.

DaojialaunchedaRMB9combosince1H2014,leadingtolowerticketsize.ItalsopromotesitsVIPcardswhichwaivethedeliverycostforacertainperiodoftime.ConsumerswhopurchasedtheVIPcardaremoreinclinedtoordercheaperfoods,sincetheydonotcareaboutdeliveryfeesanylonger.

Themanagementplanstolaunchmoreafternoonteadelivery,andtheticketsizeisexpectedtobedraggeddownevenfurther.

“SometimesuseronlyordersabowlofricebecausetheyhavetheVIPcardsthatcanwaivethecourierfee.Butwestillhavetotaketheorderanddeliverthericetotheuser.”

CurrentCourierofDaojia

AverageTicketSizeofDaojia,Jan13-Feb15

Daojia’sexpansioninnewmarketsisthoughttobeinefficient,asitfailedtogetasatisfyingmomentuminaccumulatingmerchants,customersandorders.

Sincethenumberofordersisoneofthemostimportantfactorthatrestaurantsvalues,Daojiamakesquiteslowprogressinexpansion.Itcanbefoundfromthefollowingchartthatthenetincrementalamountofnewcooperativerestaurantsinthosenewlypenetratedcitiesremainslow,indicatingDaojia’sstruggletoexpandnewmarkets.

NumberofNetIncrementalRestaurants,May14–Mar15

14-May

14-Jun

14-Jul

14-Aug

14-Sep

14-Oct

14-Nov

14-Dec

15-Jan

15-Feb

15-Mar

OriginalMarkets

Beijing

158

175

226

282

142

144

167

276

237

-17

121

Shanghai

25

19

27

10

47

12

10

76

138

-64

65

Hangzhou

-

14

27

-5

-4

1

10

4

9

-34

65

NewlyPenetratedMarkets

Suzhou

74

41

22

17

8

-14

2

52

-11

-18

24

Nanjing

6

37

25

-21

1

1

2

-3

-2

31

Changzhou

41

-1

-4

-1

-5

6

-2

-1

Wuxi

41

2

-

7

-1

-3

-1

-3

Tianjin

39

4

14

51

18

20

-8

17

Note:Thefigurereferstothenumberofstores,ratherthanchains.

Itisalsowitnessedthatthepercentageofordersfromtop10restaurantsdroppedfrom49%in2010to20%in2015,butthelevelisstillhigherthanourexpectation.Ontheotherhand,italsoimpliesthatthenumberofrestaurantscooperatedwithDaojiaisstillnotdiversifiedenough,reflectingtheinefficiencyinexpandingwithmerchants.

ThePercentageofOrdersfromTop10Restaurants,Jul07–Mar15

NumberofMonthlyCustomers,May14–Mar15

14-May

14-Jun

14-Jul

14-Aug

14-Sep

14-Oct

14-Nov

14-Dec

15-Jan

15-Feb

15-Mar

OriginalMarkets

Beijing

55,248

62,132

74,201

84,188

80,408

86,057

94,252

111,419

119,970

100,783

110,631

Shanghai

17,374

19,126

21,969

26,926

26,297

27,272

30,654

37,732

44,868

38,560

44,975

Hangzhou

3,645

3,780

6,130

5,008

4,068

4,608

5,627

5,959

5,094

3,250

4,218

NewlyPenetratedMarkets

Suzhou

11

2,180

2,716

1,396

1,234

1,826

1,752

1,844

2,628

1,818

2,151

Nanjing

170

89

172

113

110

190

182

110

134

Changzhou

149

211

157

171

153

170

102

254

Wuxi

20

92

135

164

151

160

140

252

Tianjin

68

368

221

213

461

556

427

496

NumberofMonthlyOrders,May14–Mar15

14-May

14-Jun

14-Jul

14-Aug

14-Sep

14-Oct

14-Nov

14-Dec

15-Jan

15-Feb

15-Mar

OriginalMarkets

Beijing

169,424

190,034

232,295

265,243

252,386

265,484

300,225

368,663

403,346

271,691

353,599

Shanghai

50,604

56,630

59,703

71,238

69,063

70,484

76,464

89,458

109,267

82,415

111,777

Hangzhou

7,226

8,067

14,091

13,203

11,263

10,582

11,986

12,247

11,769

6,930

10,670

NewlyPenetratedMarkets

Suzhou

2

2,753

3,843

2,906

2,998

4,188

4,692

5,247

7,577

4,338

6,182

Nanjing

291

164

342

219

292

628

924

717

295

Changzhou

258

355

236

267

261

306

151

371

Wuxi

20

130

270

298

297

311

224

428

Tianjin

73

486

446

478

1,272

1,471

1,008

1,522

Daojia’scouriersalsopresentalowerthanaveragenumberoforderscompletedeachday.Exceptfordistrictsthathaveverystrongdemandforthetake-outsfrommid-tohigh-restaurants,orhaveveryconcentratedandorganizedbuildinglayout,couriersfrommostnormaldistrictonlypresent~10ordersperpersoneachday(excludingthedaysthatcouriersdon’tgotowork),alevelbarelycoversthetotalexpenseofthestation.

Oneofthefactorsleadingtothelowpersonnel’sefficiencyisDaojia’sdispatchsystem.Daojianowutilizesadispatchsystemthatiscompletelyoperatedmanually.Manualoperationsystemisthemostoriginalsystemintheindustry,andotherplatformsstartedtotryothersystemsearlierthanDaojia.

ComparisonofDispatchingSystemamongMainO2OFoodDeliveryPlatforms

Daojia

BaiduWaimai

Meituan

System

Manualsystemcurrently.

Willadoptsanelectronicsysteminnearterm.

Electronicsystem.

Electronicsystem.

OncetriedDidi-likesystembutstopped.

DispatchingDecision

Daojia’sscheduler

Managedthesystem

SystemandpartofordersarebothmanagedbyMeishisong,athirdpartylogisticcompany

ManualIntervention

Yes

Relativelyless

Yes

Couriers

EmployeesofDaojia

Thirdpartylogisticcompany

Thirdpartylogisticcompany

#ofDailyOrdersperCourier

Bestarea17,average10

Bestarea20,average10

Baidurecruitedmorecouriersthanactuallyneeded,asapreparationforfutureexpansion.Hencecurrentefficiencyshouldbelowerthantheachievablelevel.

About25

“Eveniftheplatformadoptsanelectronicplatformthatiscompletelyfreefrommanualcontrol,thenumberofdailyorderspercouriercandeliverwouldstillbenomorethan15forDaojia.Becauseitdoesn’thaveascalebigenoughtosupportsuchorderarrangement.”

IndustryExpert

DaojiaplanstolaunchaDidi-likeorderdispatchingsystemthatallowscourierstotakeordersbythemselvesbutalsoallowsschedulertomakesomeinterventionwhenitisneeded.Butwedon’tthinkthesystemwillsignificantlyimprovetheaverageefficiencyofcouriers.

OurinterviewswithDaojia’scouriersandschedulerfoundseveralfactorswhichrestricttheefficiencyofDaojia’scouriers,butDaojiacandolittlethingstochangethesituation.Forexample,amostcriticalbottleneckisthatcouriershavetowaitwhentherestaurantsarepreparingmeals.

Theotherpointcausingthelowefficiencypercourieristhelimitedamountoforders.Ahigherorderconcentrationisverynecessaryforordercombinationwhileitdirectlyrelatestothetotalordersize.Accordingtocouriers,thereisnotmuchtimetocutdownfordelivery.Toaddresstheproblemoflowefficiency,Daojianeedstomakecourierstodelivermoreordersforeachride.

SomecouriersevenconfessedthatitwasunlikelyforDaojia’scourierstoachieveefficiencyashighasthatofMeituan’sriders.

OnereasonisthatmostofMeituan’sordersarelightmealswhichcallsforlesstimetopreparecomparedtoDaojia’sorders.

AnotherreasonisthatDaojia’sorderoftenhasmanyboxes,andacourier’sbagcanonlycontain3-4ordersatthesametime.However,Meituan’sordersusuallyonlyhas1or2boxesandMeituan’scouriercantakemaybe5-6ordersatthesametime.

BasedonBDAcalculation,giventhefactthatDaojiahaslittlemomentumingeographicexpansion,wecanhardlyseetheopportunityforDaojiatobeaprofitablebusiness.(pleaseseetheexcelversionofUEanalysisfordetails)

BDAbuildamodeltounderstandDaojia’sprofitabilityunderthreescenarios:

CurrentcasepicturesDaojia’ssituationduringMarch2015

BestcasepredictsDaojia’sprofitabilitywiththehighestpercourierefficiencythatwethinkisachievable

Underbreakevencase,weestimatestherequiredpercourierefficiencytomakeDaojia’sendsmeet

SincewefoundthatDaojia’sexpansionisclearlyinefficientandineffectivenow,wedidn’tconsideredfuturegeographicexpansioninourmodel.AndactuallywedonotthinkDaojia’slastroundofexpansionmakesanyeconomicsense.

Weassumedallthestationscanachieveadesirableefficiencyinourmodeltoconservativelyestimatetheoverallloss.However,thestationssetupinlastroundofexpansionclearlyunderperformedthoseinmaturemarketssuchasBeijingandShanghai,andthereisnoevidencethatthosenewstationsarecatchingup.

Thebestcasepresentsthebestachievablelevelofkeyoperationalmetrics,butDaojiaisstillamoney-losingbusinessundersuchcase.

Toensureasatisfyingdeliverytime,industryexpertsthoughtitisreasonabletocontrolthateverycouriertodeliveryabout17orderseveryday

Themanagementclaimedtheto-be-launchedDidi-likedispatchingsystemcanhelpimprovetheefficiencyperrider,butwethinktheimprovementwouldbelimited.WevisitedastationthattryingtheDidi-likesystem,andthesupervisorclaimedanimprovedpercourierefficiency.However,wefoundtheexpecteddeliverytimeisashighas2hoursatnoon,andwethinkthestationactuallyneedsmorecourierstomaintainuserexperience.Asaresult,theso-calledimprovementinpercourierefficiencyshouldbelargelyunsustainable.

Moreoverinthestationemployednewsystem,therearestillonesupervisorandtwodispatchers.

WeusetheLTMaverageticketsizeinourmodelinaconservativemanner.ActuallyweexpecttheticketsizewillgraduallydeclineasDaojiastartedtocooperatewiththosefastfoodchains.

Thetakerateinourmodelis12.7%,theLTMaveragefigure.WealsoexpecttheDaojiahaslimitedbargainingpowertodragitupasthehead-to-headcompetitionfromBaiduandMeituanisaroundthecorner.Hence,wethinkthisfigureisalsoaconservativeone.

ThehistoricaldeliveryfeeperorderislessthanthestandardfigureRMB6,becausemanycustomershaveVIPcardsandtheirdeliveryfeesarewaived.

Thebreakevencaserequiresaconsiderablyhigherefficiencypercourierthanthebestlevelthatwethinkisachievable.Hence,wedon’tseetheopportunityforDaojiatobeabreakevenbusiness,letaloneprofitable.

Asabovementioned,wedon’tthinkitissustainabletoleteveryriderdeliverabout25ordersperdaybecauseitishardtoensurethedeliverytimeandmaintainuserexperience.

Also,thebreakevencasecallsformorethandoubleddailyordercomparedtocurrentsituationincurrentmarkets,withoutadditionalsubsidiestorestaurantsorcustomers.WethinkitwouldalsobeagoaltoohardforDaojiatoachieve,consideringthecompetitionisexpectedtobeseverer.

OursensitivityanalysisrevealedthatevenifDaojiacanmaintainatakerateashighas20%,tomakeDaojiaabreakevenbusiness,itstillrequireseverycouriertocompleteabout19orderseveryworkingday,anefficiencythatwethinkistoohightobeachieved.However,wethink20%takerateistoohightobeachievable,especiallygiventheexpectedcompetitionfromBaiduandMeituan.Meanwhile,tomake19orderspercourierperdayavalidbreakevenpoint,Daojiastillneedtopreventitsaverageticketsizefromdeclining.

BDAEstimateonDaojia’sMonthlyProfitability

[Unit]

CurrentCase

BestCase

BreakevenCase

Note

DaysperMonth

[#]

30

#ofStations

[#]

70

Station-LevelMetrics

HeadcountperStation

[#]

31

31

31

Supervisor

[#]

1

1

1

Dispatcher

[#]

2

2

2

Rider

[#]

28

28

28

MonthlyCapacityperRider

[#]

242

442

635

DailyCompletedOrdersperRider

[#]

9.3

17.0

24.4

BestCase-BDAInterviews

WorkingDaysperMonth

[#]

26

26

26

Companyinfo

Dailyordersperstaff

[#]

7.3

13.3

19.1

Thebestcaseisinlinewiththecurrentlevelofmostmaturestations

VIPsoldperRider

[#]

7.0

7.0

7.0

LTMAverage

NetRevenueperOrder

[RMB]

14.6

15.3

15.3

CommissionperOrder

[RMB]

12.8

13.3

13.3

TicketSize

[RMB]

87.3

88.9

88.9

LTMAverage

TakeRate

[RMB]

15.5%

15.9%

15.9%

LTMAverage

VATRate

[%]

6.0%

6.0%

6.0%

DeliveryFeesperOrder

[RMB]

1.8

2.0

2.0

LTMAverage

MonthlyStation-levelP&L

TotalOrderNumber

[#]

6,784

12,376

17,792

NetRevenue

[RMB]

113,622

200,776

283,579

Commissions

[RMB]

86,866

165,057

237,292

DeliveryFees

[RMB]

12,360

24,147

34,715

VIPCards

[RMB]

14,396

11,572

11,572

LTMAverage

Salary

[RMB]

91,341

135,584

157,249

Rental

[RMB]

7,597

7,656

7,656

LTMAverage

OtherCosts

[RMB]

21,103

20,201

20,201

LTMAverage

Station-levelOperatingProfit

[RMB]

-6,419

37,336

98,474

Station-levelOperatingMargin

[%]

-6%

19%

35%

MonthlyOverallP&L

TotalOrderNumber

[#]

474,894

866,320

1,245,454

DailyNumberofOrders

[#]

15,830

28,877

41,515

NetRevenue

[RMB]

7,953,558

14,054,349

19,850,542

OperatingExpenses

[RMB]

16,117,833

18,334,007

19,850,542

Station-levelCosts

[RMB]

8,402,875

11,440,840

12,957,374

Salary

[RMB]

6,393,895

9,490,880

11,007,415

Rental

[RMB]

531,789

535,892

535,892

Othercosts

[RMB]

1,477,191

1,414,067

1,414,067

HeadquarterCosts

[RMB]

7,714,958

6,893,168

6,893,168

G&AExpenses

[RMB]

3,692,743

3,692,743

3,692,743

Mar.2015Data

SalesandMarketingExpenses

[RMB]

4,180,923

3,359,133

3,359,133

2015Q1Average

FinancialExpenses

[RMB]

-158,709

-158,709

-158,709

Mar.2015Data

OperatingProfit

[RMB]

-8,164,275

-4,279,658

0

OperatingMargin

[%]

-103%

-30%

0%

SensitivityAnalysisonDaojia’sOverallOperatingMargin

DailyCapacityperRider

TakeRate

10

12

14

16

18

20

22

24

26

28

30

12%

-152%

-116%

-90%

-71%

-57%

-45%

-36%

-27%

-21%

-15%

-9%

13%

-137%

-104%

-79%

-61%

-47%

-36%

-27%

-20%

-13%

-7%

-3%

14%

-124%

-92%

-69%

-51%

-39%

-28%

-20%

-13%

-6%

-1%

4%

15%

-112%

-82%

-60%

-43%

-31%

-21%

-13%

-6%

-1%

5%

9%

16%

-102%

-73%

-52%

-36%

-24%

-15%

-7%

-1%

5%

10%

14%

17%

-92%

-65%

-44%

-29%

-18%

-9%

-2%

4%

10%

14%

18%

18%

-84%

-57%

-38%

-23%

-13%

-4%

3%

9%

14%

18%

22%

19%

-76%

-50%

-32%

-18%

-8%

1%

7%

13%

18%

22%

25%

20%

-69%

-44%

-26%

-13%

-3%

5%

11%

17%

21%

25%

29%

Daojialackscompetencycomparedwithpeers.Ithassmallerscaleinthenumberoforders,penetratedmarketsandtheamountoftraffic,whilepeersarealsoapproachingtothemarketwhichistargetedbyDaojia.

DaojiastartedearlierthanotherO2Ofooddeliverycompanies,butlagsbehindotherpeersinthenumberoforders,citiesandactiveusers.

MainO2OFoodDeliveryCompaniesComparisonfortheNumberofOrdersandCities

Daojia

BaiduWaimai

Meituan

Eleme

TaoDD

EstablishDate

10-Oct

14-May

13-Nov

9-Apr

13-Dec

#ofCities

8

70

200-300

200-300

20-30

#ofOrdersperDay(‘000)

20

160

1,000

1,000

140-150

%ofCampusOrder

0%

10%

75%

60%

55%

%ofCommercialOrder

100%

90%

25%

40%

45%

“Daojiaonlycooperateswithmid-tohigh-endrestaurants,kindoflimitingitsexpansioninthemarket.RestaurantsthatcooperatewithDaojiaalsoworkswithotherO2OfooddeliverycompaniessuchasMeituanorBaidu,butlowerendrestaurantsareexcludedbyDaojia.ThereisnoadvantageforDaojiaintermsofthenumberofcooperatedrestaurants,anditisdirectlyreflectedonthenumberofordersandonitspaceinexpansion.”

IndustryExpert

WhatmakesDaojia’ssituationevenworseisthegreatdifficultyinbuildingbarriersinmerchantends.Consumerstendtohavethemealonsiteinthosemid-tohigh-endrestaurantsmorethanintheothers,andtake-outsonlycontributeatmost10-15%oftherestaurant’stotalrevenue.Becauseofthelimitedrevenuecontribution,Daojiadoesn’townthebargainingpowerstrongenough