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DiDi’s regulatory issues are a great entry point, albeit risky


DiDi’s (NYSE:HAVE I GOT) rapid growth has come to a screeching halt as it is under intense regulatory control. It is now one of the worst performing major Chinese company listings on a US stock exchange. Since its public debut on the New York Stock Exchange On June 30, at $ 14 a share, DIDI shares fell 66%.

Source: Piotr Swat / Shutterstock.com

You cannot attribute the poor performance of the stock to Didi’s management or operations. Instead, stocks were hit with a regulatory crackdown, as the Chinese government sought to strengthen its oversight of data security and listed companies overseas.

Didi raised $ 4.4 billion on its IPO after selling 317 million U.S. depository shares at the IPO price, more than any Chinese company since Alibaba Group (NYSE:BABA).

In early December, just five months after its initial public offering in the United States, DiDi announced that it would file for delisting from the NYSE and pursue listing in Hong Kong. It’s a tough pill to swallow, and many investors chose to cash in, causing DIDI stock to fall 22% on the day.

Recently, stocks fell to another low after Didi’s 180-day lock-in period expired. Management does not want the stock to drop any further. Thus, this prevents current and former employees from selling shares in the hope of supporting the share price.

Nonetheless, despite the negative externalities, it is hard not to be impressed by DiDi Global’s growth prospects. As China’s middle class continues to grow, so do the opportunities for DiDi Global. Thus, the long-term tailwinds are positive. If you are an investor willing to take a little risk, there are several ways you can play this stock for short and long term gains.

Regulatory Issues Thump Didi Stock

Beijing has severely criticized Chinese tech stocks over the past year. President Xi Jinping’s administration is touting data privacy as the reason for restraining the once freewheeling industry. However, several big names are suffering. For DiDi Global, it seemed like the sky was the limit when it debuted on the NYSE. However, things now seem a bit more blurry.

DiDi’s board of directors has given the green light to delisting from the NYSE and is continuing an IPO in Hong Kong. According to the company, DIDI shares will be “convertible into freely tradable shares of the company on another internationally recognized stock exchange at the election of ADS holders.”

Bloomberg reported that the company is currently seeking to register its Hong Kong IPO around March, citing people with knowledge of the matter. According to the report, we could see stocks trading on the stock exchange by the summer.

Investors are faced with three options. The first is to sell their stocks and wipe their hands of the investment. The second option is to wait for the conversion to the Hong Kong Stock Exchange. You must confirm that your brokerage account provides access to international stock exchanges if this option suits your investment needs. The third option is to wait and see if the company decides to go private.

In July, the the Wall Street newspaper reported that DiDi was considering privatizing the company to appease the Chinese government. At the time, DiDi denied the report, but let’s consider the possibility for a moment. If the ridesharing giant has been private, it is highly likely to be a bonus to current stock levels.

However you slice them up, stocks are trading well for all of these possibilities.

International expansion

With the ever growing middle class in China, major cities are facing a shortage of taxis. Carpooling offers a solution to this problem and an income opportunity for thousands of drivers in all of these regions. Didi Chuxing is the most popular ridesharing service in China, with a market share of around 90%.

For the future, DIDI is focusing on international expansion to become a truly global player in the carpooling industry. It previously planned for their operations in Europe and Britain, but halted those plans after privacy concerns arose from local data protection regulations.

An important part of sustaining high income growth rates is expanding into new markets like Africa. The continent’s middle class is a major catalyst for the region’s economic growth. And it will continue to fuel urbanization. With an increasing number of people living on higher or higher income levels, there are more opportunities than ever for companies like DiDi.

Overall, according to a report by Precedence Research, the ridesharing market is expected to grow at a compound annual rate of 16.7% through 2030, to reach $ 344.4 billion.

This growth does not even include the autonomous driving market, which is the biggest potential source of money for the company. Removing the drivers behind the steering wheels would allow a company like DiDi to eliminate one of its major expenses that eat away at its profit margins. The final impact will be astronomical.

DiDi invests in the future

DiDi is investing heavily in electric vehicles and autonomous driving technology. With its “robotaxi” unit that offers rides via mobile robots (think: driverless taxis), they are one of the few companies that have succeeded in not only providing these services but also creating them. Didi Chuxing has announced plans to operate more than one million such vehicles by 2030.

It already has 100 autonomous vehicles on the roads. And he hopes to soon deploy shared power grids in Chinese cities. Didi has a subsidiary dedicated to its autonomous driving projects. With funding of $ 800 million, this startup is now SoftBank Vision Fund, among others.

Didi Chuxing is also active in financial services. The product line includes auto insurance products, personal loans, and crowdfunding funded medical coverage. In addition, the transportation segment includes the delivery of food and groceries. They have a community group buying platform called Tuán Gòu. It allows you to buy wholesale items from other members through your app at discounted prices. The ridesharing giant uses its vast mine of user data to infer what people earn from where they spend most of their time.

Didi competes directly with more established players such as Alibaba Financial ants and Ten cents (OTCMKTS:TCEHY) WeSure platform. Meanwhile, the Chinese government is expanding its pressure on fintech beyond Jack Ma’s Ant Group, with Tencent and ByteDance among the latest companies to be summoned by authorities.

However, you can’t fault DiDi for diversifying its revenue base.

The result on DIDI’s stock

It cannot be denied that the DIDI share is in the red, as confusion reigns before the planned American delisting of the company. Nonetheless, there are some bright spots that bulls can exploit for quick wins.

The company controls an estimated 90% share of the ridesharing market in China and continues to grow despite pressure from regulators. The Chinese carpooling giant is also active in several areas with high growth potential.

Therefore, there are more than enough positive winds for an investor who is willing to take a little risk and has the opportunity to potentially access stocks overseas. It’s just about navigating rough waters. On the other hand, DIDI stock also makes sense as a short-term investment, given the short-term catalysts.

At the date of publication, Faizan Farooque did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.

Faizan Farooque is a contributing author for InvestorPlace.com and many other financial sites. Faizan has several years of stock market analysis experience and was a former data reporter at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions about their portfolio.


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