Didi Downward Spiral Accelerates Amid Delisting Drama

Just last year, delivery and ridesharing company Didi Global (NYSE:DIDI) debuted on the New York Stock Exchange to great fanfare. DIDI stock launched its IPO at $14 and trading opened above the $16 mark.

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

It’d be all downhill from there though. Shares plunged below the $10 level within a month of the IPO and fell below $5 to open 2022. Things went from bad to worse last Friday. On that day, DIDI shares lost 44% of their remaining value in a single trading session to close below $2. Every time it seemed like Didi would find a level of support, it soon plunged into a deeper hole. So, is there any hope for the beleaguered delivery company?

Several Major Problems

In one sense, it might seem tempting to buy DIDI stock after its crushing decline last week. After all, pundits such as Jim Cramer were saying to buy as much DIDI stock as possible last year around the IPO. If Didi was worthy of investment at $14, surely it must be a screaming buy under $2, right?

However, that’s not necessarily the right call. And to understand, we have to back up. What caused the beginning of Didi’s downfall? That would be last year, when the Chinese government cracked down on the firm. Just after the IPO, China blocked Didi’s app from app stores. Chinese officials cited cybersecurity risks and infringement of users’ privacy.

China’s move showed that Didi was not free from the government’s increasing crackdown on large pieces of its tech sector. Subsequently, even giants like Alibaba (NYSE:BABA) have ended up in regulatory messes, leading to widening losses across the Chinese tech sector.

As if the regulatory problems and questions around China’s political situation weren’t enough, Didi’s actual operating business is struggling as well. Actually, struggling is an understatement. Last quarter, Didi generated an operating loss of $4.7 billion. Yes, nearly $5 billion of shareholder value gone in a single quarter.

Delisting Fears Intensify

Another big story line for DIDI stock has been delisting worries. Since last year, there has been speculation and rumors that Didi would abandon its New York Stock Exchange listing and relocate its shares to another market. Hong Kong seemed like the most logical destination for shares if it decamped from New York.

However, Didi has now scrapped that plan. It said last week that it will not be listing the company in Hong Kong. At the same time, the Securities and Exchange Commission has broadened its regulatory inquiry into Chinese companies listed in New York and threatened five more Chinese firms with punishments.

So, Didi appears to be caught between a rock and a hard place. The U.S. regulatory concerns aren’t going anywhere. If anything, risks are continuing to mount for U.S.-listed Chinese firms. Meanwhile the long-awaited escape hatch — the Hong Kong market — is now off the table.

As such, it’s highly uncertain what will become of DIDI stock in three or six months time. Staying in New York seems increasingly unlikely. Besides all the other concerns, the stock is now approaching the $1 threshold, below which shares would get delisted anyway. Meanwhile, there’s no backup exchange to run to, and rumors of a buyout of Didi have failed to come to fruition.

This wouldn’t be such a terrible thing if Didi were profitable and had a sustainable business. But given that its operating losses run in the billions, it simply doesn’t have time to wait this out. It’s going to need a lot more capital to survive. But its options are running dry.

DIDI Stock Verdict

It’s possible that Didi will enjoy a big recovery. Or, at minimum a decent short-covering rally. Given the magnitude and velocity of the decline, traders could normally count on some sort of relief rally. And it definitely could still happen.

But let’s be clear, DIDI is only for the most risk-seeking of people right now. There’s no guarantee that Didi shares will still be traded on a major international stock exchange in the future. And, even if they are, Didi is losing tons of money and may lose access to outside funding to keep the business alive.

If there was just one or two problems, maybe Didi would be a buy. But, we have a massive flood out of Chinese stocks amid its mounting economic and political tensions. The tech stocks are getting killed, with the delivery names in particular facing a punishing 2022. And now there’s this concern that regulators may delist DIDI stock altogether. It’s unfortunate how all this has happened — it’s been a string of incredible bad luck for people that bought the IPO — but even now, there’s no turnaround in sight.

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 $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

Article printed from InvestorPlace Media, https://investorplace.com/2022/03/didi-downward-spiral-accelerates-amid-delisting-drama/.

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