DiDi Global: An IPO that Failed in All Ways

DiDi Global Inc. (NYSE:DIDI) “the world’s leading mobility technology platform” has faced a tough time over the past 3-month period with losses of nearly 50%. In 2022, DIDI stock is down 15.9%. Is now the time to buy this beaten-down penny stock as China is among the top global economies and may surpass the U.S. economy in terms of gross domestic product (GDP) in a few years? Do not rush into it without reading the latest news about DiDi Global.

Map and smart phone with the Didi (DIDI) logo
Source: DANIEL CONSTANTE / Shutterstock.com

Back in Sep. 2021, my article on DiDi Global had a dramatic title: “DiDi Global Is Driving on ‘Death Road’ With Your Money.” I listed arguments, including government probes, delisting rumors, and bad financials as negative factors for DIDI stock. I concluded “Given the recent news and its poor key financials, I wouldn’t go near it.”

A quick reminder of Didi Global’s initial public offering (IPO) will demonstrate what I often call irrational exuberance in Wall Street.

Losing Value, Tons of It

Shares of DiDi Global made their trading debut in the summer of 2021 on the U.S. stock market. It was valued at $62 billion in the private markets. On the first day of trading, DIDI stock gained 1%, closing at $14.14 with a market cap of nearly $67.8 billion. The IPO offering price was $14 a share.

At some point during the first trading session, the stock made a high of $18.01, up about 28% from the company’s offering price of $14 per share. This brought its market cap to more than $80 billion.

Now there is too much pain and even regret for early investors of DiDi Global. The current stock price is $4.17 and the market capitalization is $20.28 billion. This is about 70% off its IPO price. Nevertheless, even more negative news is present now.

A Delisting from New York Stock Exchange Is Coming Soon

The listing on the New York Stock Exchange will not last long as the firm has announced its decision to “[delist] the Company’s ADSs from the New York Stock Exchange, while ensuring that ADSs will be convertible into freely tradable shares of the Company on another internationally recognized stock exchange at the election of ADS holders.”

The company has chosen to list on the Hong Kong Stock Exchange. What this means is that U.S. retail investors will have the choice to keep their shares of DiDi as they will convert to other tradable shares on the Hong Kong Stock Exchange. But this adds a lot of risks, uncertainty, and practical issues.

First, it could take a considerable amount of time to complete the listing to the Hong Kong Stock Exchange. Second, it will be a challenge for investors to monitor their shares on another stock exchange in a different currency as they will have to monitor both the stock price and the currency exchange. I believe that institutional investors will probably not face problems, but individual investors will.

The Actual Reasons Behind the Delisting

DiDi Global has announced it is reducing its workforce by 20% during the transition to the Hong Kong Exchange.

The firm is dealing with an unresolved cybersecurity probe by China for violating the country’s laws and regulations. More specifically, the Cyberspace Administration of China informed the company that 25 of their apps collected sensitive personal information from users and forced app stores to take down these apps.

Worries about leakage of sensitive data may lead to fines imposed on DiDi. A suspension of business operations is also likely.

Unaudited Quarterly Financial Results Raise Concerns

The latest financial results for the second quarter ended Jun. 30, 2021, and the third quarter ended Sep. 30, 2021, were not inspiring either. Net loss attributable to ordinary shareholders for the third quarter of 2021 was 30.6 billion RMB ($4.7 billion in U.S. dollars). Apart from being unprofitable, DiDi Global is also burning cash. That is not a great combination to support growth and valuation.

The bottom line for DiDi Global is that it was a risky stock to begin with. With the delisting and the ongoing cybersecurity probe, it has become riskier. The prudent decision is to avoid it as there is too much negative news.

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Read More: Penny Stocks — How to Profit Without Getting Scammed 

On the date of publication, Stavros Georgiadis, CFA  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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn

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