With Didi Global (NYSE:DIDI) making its big public debut this week, many investors are trying to decide whether or not the Chinese ridesharing giant warrants a $78 billion market capitalization. As is often the case with blockbuster IPOs, the first few weeks of trading typically do not live up to the hype, but Didi might be able to buck this trend. The stock closed up 17% from its $14 offering price after Thursday’s trading session and is certainly worth monitoring going forward.
After raising $4.4 billion from the stock sale, founder-led Didi became the largest Chinese IPO in the United States since Alibaba’s $25 billion offerings back in 2014. Investors are probably familiar with the bull case for ridesharing companies, and this stock could end up becoming a long-term winner if you are willing to put up with some of the risks associated with investing in Chinese companies.
Interested in learning more about one of the biggest IPOs of the year? Here are 3 things for investors to know about Didi Global Inc stock:
1. Uber of China
As mentioned earlier, Didi is a China-based ride-sharing company providing consumers with a range of mobility services with its technology platform. The company has earned the nickname “The Uber of China”, which makes sense as the company essentially drove Uber out of the country back in 2016 by purchasing its mainland China operations. Didi operates in three segments, China Mobility, International, and Other Initiatives, and is one of the world’s largest mobility technology platforms. The company has a very dominant position in China’s shared-mobility market, where it is poised to capitalize on the growth of that industry in one of the world’s most populated countries.
Prospective investors should note that China’s shared-mobility market is expected to grow 270% over the next 5 years, and the company should benefit from low car ownership in China’s city centers for years to come. It’s also worth mentioning that Didi has created the largest network of electric vehicle charging stations in China, with over 30% market share of total public charging volume during Q1. The company already has the world’s largest network of electric vehicles on its platform and is also using AI technology and real-world traffic data to develop autonomous driving solutions, which means Didi is involved in some of the most exciting industries of the future.
2. Big Backers & Inconsistent Earnings
Another thing for investors to know about Didi Global is the fact that the company has some well-known backers, which tells us that high-profile investors have some skin in the game. We mentioned earlier that Didi purchased Uber’s China operations a few years back, and Uber still has a 12.8% stake in Didi from the deal. The company also has backing from Softbank (OTC:SFTBY), which owns 21.5% of the company, as well as investments from technology giants Alibaba (NYSE:BABA) and Tencent (NYSE:TME).
Like many ridesharing companies, Didi has been inconsistent on the earnings front. In 2020, the company reported a net loss of $1.63 billion on revenue of $21.6 billion. However, Didi was negatively impacted by the pandemic and has already started to see a rebound in sales, as it delivered a Q1 profit of $30 million. As with many growth stocks, adding shares of Didi is essentially buying into the company’s long-term potential in a rapidly expanding market. The inconsistency in earnings might present some volatility in the near term, but it's hard to argue against the potential of this company especially as ridesharing volumes pick up again in the wake of the pandemic.
3. Risks That Cannot Be Ignored
As with all Chinese companies, there are several risks associated with Didi to keep in mind if you are considering an investment. First, the fact that Didi is under investigation by Chinese authorities over potential antitrust violations is a big risk to monitor. The Chinese government is trying to crack down on big technology companies in the country that keep smaller competitors out of the game, and it's hard to tell what kind of results or penalties the investigation could bring. There’s also the risk of increasing tensions between the U.S. and China leading to the delisting of Chinese stocks to consider.
Finally, investors should note that the ridesharing market is incredibly competitive and that Didi might have to deal with similar labor issues that have impacted Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) here in the United States. It’s always important to dive deep into the company’s prospectus for more information on its risk factors, so make sure to do your due diligence before adding shares of Didi or any other IPO stock.