There aren’t many stocks that have been halved on the year, but Chinese ride hailing and delivery company DiDi Global (NYSE:DIDI) is one of them.
At $8.30 a share, DIDI stock is down significantly from its initial public offering (IPO) that was held on June 30. The fall has been swift and steep and left many shareholders reeling at the losses.
The good news is that authorities in China have cleared the company to list its shares in Hong Kong. And it appears that some of the regulatory pressure DiDi has been under is starting to lift.
If true, that would be the best news that DiDi and its shareholders have had in months.
Regulatory Crackdown
Broadly speaking, DiDi got swept up in a sweeping regulatory crackdown of China’s technology sector.
So China’s regulators clearing a path for a Hong Kong share listing of DIDI stock would be a stark reversal to how authorities in the country of 1.4 billion people have treated DiDi so far.
After all, these are the same Chinese authorities, the Cyberspace Administration of China (CAC), who raided DiDi’s corporate offices and launched a public investigation of the company in June. This was likely done in retaliation for the company listing shares on the New York Stock Exchange. And the main reason that DiDi’s IPO turned into a fiasco and its share price has collapsed over the past five months is because regulators in China singled out the company for punitive actions.
At least the investigation into the company appears to have at least cooled down if not gone away.
However, that being said, DiDi is still waiting for the CAC to levy some type of fine or other penalty against it. Initially, there were concerns that DiDi could be hit with one of the biggest financial penalties ever handed down in China. But, after rival delivery company and market leader Meituan (OTCMKTS:MPNGF) was fined only $534 million in October for abusing its dominant position, concerns have eased that any fine levied against DiDi, which is smaller than Meituan, will be seriously damaging to the company.
Future Outlook
While based in China, DiDi does have international ambitions. It has expanded to overseas markets that include Singapore, Japan, Russia, Australia, New Zealand, Canada and Latin America.
And the company has announced some positive financial results, turning a profit of $860 million in this year’s first quarter. Its Q1 revenue soared 106% year-over-year to $6.6 billion and reported that it had 493 million active users worldwide. Analysts in the U.S. forecast that DiDi’s revenues will rise 38% this year and grow another 19% in 2022, but it’s hard to know if the company is on track to meet those targets as it hasn’t provided any forward guidance.
Additionally, DiDi generates more than 90% of its revenue from its Chinese mobility services, which include its ride-hailing and ride-sharing services. But the future of its apps remain unclear.
Authorities in China suspended the app in the summer as they clamped down on DiDi following its listing on the NYSE. And rumors persist that DIDI stock may end up being delisted in the U.S. in an effort to appease politicians and regulators in Beijing. DiDi recently announced that it plans to relaunch its ride-hailing and other apps in China by year’s end as it expects the investigation into its operations will be over by then.
DIDI Stock Is Just Too Risky
Reports out of China (if they can be believed) suggest that the crackdown on DiDi is coming to an end. But the company, and its stock, are not out of the woods yet. Given how beaten down and fragile the share price is currently, it wouldn’t take much to send the stock down further. And the Chinese government has shown itself to be incredibly unpredictable and erratic this year as it clamps down on a wide swath of economic sectors and companies.
Given all this lingering uncertainty, and the fact that DiDi’s stock is already down about 50% since its IPO, investors would be best advised to look at other ride hailing and delivery stocks for potential investments.
DIDI stock is not a buy.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
