It all started with so much promise. DiDi Global (NYSE:DIDI) stock started at $14 per share after the company launched its initial public offering (IPO) in June. It was supposed to be the so-called Uber (NYSE:UBER) of China.
DiDi, like Uber, is primarily a ride-sharing platform. DiDi has carved out a niche for itself since Uber and other western competitors failed to catch on in China.
That’s not all, however. DiDi also offers food delivery, freight services, electric vehicle (EV) leasing services and so on.
The company hasn’t reached profitability yet, but it has shown rapid revenue growth. Up until it ran into trouble with Chinese regulators, it looked like DiDi had a good shot at being a long-term winner. Since then, it’s all gone awry. The latest turn might just be the worst yet; DIDI stock is being forced off the New York Stock Exchange.
Leaving New York: What Comes Next?
Earlier this month, DiDi announced that it will start the procedure to delist its stock from the New York Stock Exchange. DiDi stated that this will start “immediately,” though there wasn’t too much in the way of hard details on the exact timing of things.
DiDi did say that existing DIDI stock shares will remain freely tradable and move to another international stock market exchange. It appears that DiDi will relist in Hong Kong after leaving New York.
Existing shareholders should be able to transfer their holding to the Hong Kong stock market or wherever the shares ultimately end up. That said, some brokers, such as Robinhood (NASDAQ:HOOD) have limited support for stocks that aren’t listed on a major U.S. exchange.
A sizable number of retail investors may not be able to maintain their share ownership in DiDi if and when the stock is relisted in Hong Kong.
In theory, if the stock is delisted, it would likely lose some value in the short run. A significant portion of the shareholder base would probably choose to sell DIDI stock in New York while they still could. It will take some time for a new loyal investor group to develop in support of the stock with its Hong Kong listing.
What If It Is Privatized?
I’ve seen bullish arguments suggesting that DIDI stock would be worth $14 in a potential privatization scenario. I disagree with this view.
The $14 mark comes from the company’s IPO, which went off at $14 per share. In a fair and just world, since DiDi can’t remain on U.S. markets, it would refund the original $14 per share back to make good on the IPO.
However, this seems unlikely. For one, a huge portion of the stock has already traded hands and people have made or lost money accordingly; there’s no way to “undo” the IPO even if people wanted to.
For another, the value of DiDi has arguably dropped significantly since the IPO. China’s regulators cracked down on DiDi in particular, removing its app from stores. This was certainly a negative development compared to what people knew at the time of the $14 IPO.
Also, Chinese tech stocks such as Alibaba (NYSE:BABA) have been in freefall. It would be hard to argue that Didi is still worth the same price today as then when other listed Chinese tech companies have dropped substantially.
Finally, I doubt insiders would be so generous. DIDI stock is trading below $7 per share now. Most shareholders would probably be happy to get something like $9 or $10 given the current state of DiDi in particular and tech stocks in general.
A take-private scenario is reasonably likely and would have upside for shareholders, but don’t anchor on the IPO price. At this point, any potential deal probably happens at a significantly lower price.
DIDI Stock Verdict
Any potential trade in DIDI stock is a pure speculation, let’s be clear about that. The ultimate fate of the company’s stock — or at least its listed shares in New York — is in the hands of corporate insiders and regulators.
They have multiple avenues to choose from, and outside forces may compel them toward a certain outcome.
As traders, any play here is simply an educated roll of the dice on how insiders and regulators will handle this mess. If they choose to privatize the company quickly, shareholders should receive a decent premium. I’d guess something like 25% or 30%, don’t count on getting the $14/share IPO price back, but it’d likely be a reasonable profit.
If the company decamps from North America and turns to a Hong Kong listing, that could go either way. Shareholders would still have an economic interest in the future of DiDi’s business.
However, with less liquidity — in particular, not being able to trade the stock on many U.S. brokerages — shareholders might not want to stay with Didi while going down this path.
There’s also the risk that DIDI stock is left to languish. Not yet delisted, but still hanging under the cloud of future regulatory action. In the short term, DiDi’s shares may continue to sink until there is clearer resolution on the company’s fate. That being the case, there are better bets to play a recovery in the Chinese tech sector.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.