Chinese ride-hailing giant DiDi Global (NYSE:DIDI) burned its investors after its dreadful IPO (initial public offering) last year. DIDI stock was trading at $14 when it went public last June and quickly got up to an all-time high of $18. However, since then, the stock has shed nearly 80% of its value. Business challenges aside, its regulatory woes have crushed its outlook and remain a top concern. Hence, it’s best to steer clear of its stock amidst multiple red flags.
DiDi is a leading ride-hailing business in China that follows an identical business model to Uber (NYSE:UBER) and other top ride-hailing companies. DIDI stock has been hammered amidst government pressures, widening losses and its de-listing conundrum. Given its recent woes, the stock trades significantly lower than its IPO price but offers little for the long-term investor.
Regulatory Troubles Are Crippling DIDI Stock Progress
The never-ending saga of DiDi’s troubles with the Chinese regulatory authorities continues to be a major roadblock for the company’s expansion efforts. The Cyberspace Administration of China (CAC) recently halted the company from listing its shares on the Hong Kong stock exchange as it fell short of regulatory requirements. Consequently, its main apps will remain suspended in the country for the foreseeable future.
Hence, the listing and de-listing dilemma for DiDi has thrown a monkey wrench in its attempt to kick start its growth story. Moreover, Chinese regulators have drafted new guidelines that force ride-hailing companies to limit personal data usage, restrict their commissions and offer better wages and benefits for their drivers. These requests will add more pressure on DiDi’s bottom line, already showing a whopping net loss of over $7 billion.
Additionally, to prove its apparent subservience to the Chinese government, DiDi walked back its plans to exit the Russian market. It had previously announced it would stop its business operations in Russia amidst the Russia-Ukraine war. However, it quickly took a U-turn on its plans, presumably due to Beijing’s alliance with the Russian government. Nevertheless, the blatant attempt to please the Chinese government is obvious, indicating the powerlessness of the company at this time.
DiDi’s ability to gain new users overseas and in China will be hindered substantially if its unable to fix things on the regulatory side.
International Expansion Is Imperative
DiDi is focusing on expanding its business to overseas markets, which could further cement its position in its sector. It currently produces over 95% of its sales from the Chinese market but plans to reduce its dependence significantly.
China’s middle class, though, is growing at a healthy pace. Moreover, becoming a key player in Africa and Europe will help cement a global footprint and the ability to maintain its growth rates. However, after the privacy and IPO crackdown, it halted its plan to enter the U.K. and European Union.
These efforts, though come at a substantial price. DiDi’s overseas sales rose 57% from the prior-year period to $400 million during the first nine months of 2021. However, the segment reported a massive $618 million loss, a major contributor to overall losses for the company.
Bottom Line on DIDI Stock
DIDI stock has been in free-fall since its IPO last year and continues to be a lackluster performer. Though its business faces multiple challenges, it is unable to work on them amidst an ongoing battle with the Chinese regulatory authorities.
The latest setbacks indicate that the authorities won’t be backing down anytime soon and that DiDi needs to sort things out before it gets further out of hand. Hence, it’s best to forego DIDI stock.
On the date of publication, Muslim Farooque 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.
