Shares of DiDi Global (OTCMKTS:DIDIY) rose 14% earlier today on news that the Chinese ride hailing and delivery company has been hit with a $1 billion fine. This signals the end of a regulatory investigation into DIDIY stock and its cybersecurity practices, and allows it to start adding users to its platform again.
According to multiple media reports, authorities in Beijing want Didi Global to pay $1 billion for committing data breaches. While no company wants to pay a fine, the financial penalty ends a long-running probe into its cybersecurity practices, lifting a cloud of uncertainty and enabling DiDi Global to resume normal operations. Investors are taking the end of the investigation as a positive development and bidding up the stock as a result.
Even with today’s leg higher, DIDIY stock is down 38% on the year and trading on the over-the-counter market at $3.25 per share. The company delisted its stock in the U.S. earlier this year in another move designed to appease Chinese regulators.
What Happened With DIDIY Stock
The fine imposed on Didi Global represents 4% of the company’s 2021 revenue of $27.3 billion. It’s the largest financial penalty imposed on a Chinese technology company since e-commerce giant Alibaba (NYSE:BABA) was fined $2.75 billion last year for antitrust practices by China’s market regulator. Alibaba’s fine was equal to about 4% of its revenue.
Once the fine is paid, Didi is expected to have restrictions lifted on it that had prevented the company from adding new users to its platform. DiDi’s app is also expected to be restored to Chinese app stores. Authorities in Beijing had ordered the app removed last year and banned the company from adding new users when it launched its probe into DiDi’s cybersecurity practices.
Why It Matters
Didi Global, which was founded in 2012, had previously set aside $1.5 billion for a potential regulatory fine. The fine being imposed on it is less than the amount set aside, which is a positive development for the company.
DiDi had angered Chinese authorities by holding a $4.4 billion initial public offering (IPO) in New York in June 2021. Its stock rose sharply immediately following the IPO, giving the company a market capitalization of $80 billion.
However, days after the listing, China’s internet regulator launched a cybersecurity probe into the company’s data practices and ordered app stores to remove its app. The company announced it would delist from the New York Stock Exchange last December.
DiDi can now put all this trouble behind it and return to normal operations, which is being viewed favorably by investors.
What’s Next for DIDIY Stock
DIDIY stock got a nice pop on today’s news. While reports that Chinese authorities are now backing off DiDi Global are encouraging, it is not clear if the far-reaching crackdown on publicly traded companies in China, which began two years ago, is completely over.
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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.
