DiDi Global (NYSE: DIDI) went public last week at a valuation of $83 billion. DiDi Global is the largest ride-hailing app in China and is often compared to Uber (NYSE: UBER). Since its debut, shares have trended lower especially following news that the company is being investigated by China's cybersecurity regulators. The company said that it had no knowledge of the investigation prior to the IPO.
This continues a pattern of the Chinese government cracking down on many of the largest businesses in the country which has led to the stocks underperforming over the last couple of months. As a result, the company was forced to stop registering new users, and its app was removed from app stores. Regulators will review the company's security procedures to prevent data security risks, safeguard national security, and protect the public interest.
Company Profile
Clearly, the news was an unwelcome development for buyers of the IPO. Recent investigations into companies have been long, drawn-out processes that have led to steep losses for the stock price and curbing of company's ambitions with the most notable, recent example being Alibaba (NYSE: BABA).
Interestingly, DiDi was founded by an Alibaba alum - Cheng Wei in 2012 - as a taxi-hailing app. From this, the company grew as smartphones became ubiquitous and in 2015, it merged with its biggest competitor. Eventually, the company also bought Uber's Chinese division to become the dominant ride-hailing app in China.
DiDi opened about 20% above its pre-IPO price of $14 and was able to raise about $4.4 billion during the IPO. Some of DiDi's major holders include Softbank (OTC: SFTBY), Apple (NASDAQ: AAPL), and Uber. Last year, the company generated $21.6 billion in revenue and lost $2.5 billion. However, there are signs that business is improving as the economy normalizes. In Q1, the company generated a profit of $95 million and revenue of $6.4 billion which is a 101% increase from 2020's Q1.
The company has 493 million riders and 41 million average, daily transactions. It's also expanding internationally with operations in 14 countries and plans to enter new markets in the coming years. In addition to scrutiny from regulators over its security practices, the company is also facing an antitrust inquiry.
Stock Price Outlook
Due to tensions between the U.S. and China in addition to the Chinese government's treatment of companies, many Chinese stocks are trading at a significant discount to American companies. This is also evident with Uber and DiDi as Uber is valued at $94 billion with $10 billion in revenue, while DiDi has a valuation of $76 billion and revenue of $26 billion.
Both DiDi and Uber are likely to benefit from the reopening of the economy and the surge in people going out and traveling. They are also essentially monopolies as they have a dominant market share. Thus, both stocks are likely to grow over the long term.
However, investors should probably avoid DiDi in the interim as it's the subject of two investigations, and recent history indicates that these will not be easily or quickly resolved.