Will Didi Stock Recover? It’s been a difficult few years for Chinese stocks – especially those listed on US exchanges. Global economic conditions, the Chinese regulatory environment, and the U.S. government’s ongoing concerns with Chinese accounting practices have made these stocks high risk for investors.
Over the past year, the biggest challenge for certain fast-growing Chinese tech stocks has been the Chinese government. In addition to the government’s general discontent with Chinese companies listing their shares on US exchanges, China is deeply concerned about the prospect of personal data from Chinese users getting into the wrong hands.
In 2021, the Chinese government launched investigations into a handful of Chinese tech companies, and while those investigations were underway, the companies’ apps were banned from app stores. They were prohibited from adding new users, essentially cutting off any growth prospect. That’s devastating for any business, but it is particularly difficult for tech firms that don’t have alternative sources of revenue.
In early June 2022, Didi stock suddenly popped – and so did other Chinese tech stocks like Kanzun Limited, Full Truck Alliance, Baozun, and GDS Holdings. What happened? And does this mean Chinese stocks like Didi are now a buy?
What Kind Of Stock Is Didi?
Uber is widely considered the world’s leading ridesharing platform, and a look at the numbers shows why. In 2021, 118 million people used Uber to get where they needed to go, which represents a 26 percent increase over 2020. Uber is available in more than 10,000 cities and 72 countries – but you can’t get an Uber in China.
That’s because Chinese ridesharing platform Didi acquired Uber’s Chinese market in 2016. In exchange, Uber took a 12.8 percent stake in its former competitor. Didi continued to grow rapidly in the years that followed, and it now has 493 million annual active users. Didi provides service in 4,000 cities across 17 countries.
In terms of locations served and market cap, Uber comes out on top. Uber is currently valued at nearly $44 billion, while Didi is closer to $15 billion. However, from an annual active user perspective, Didi dwarfs Uber, and recent events are likely to prompt dramatic growth in a very short period. It may not be long before Didi is regarded as the world’s leading ridesharing platform.
Does all of that mean Didi stock is a buy?
Not necessarily. The company left the New York Stock Exchange within a year of its IPO after losing 90 percent of its value, and it still has challenges to overcome before its back on track. For some investors, the high potential rewards are worth the elevated risk, but that sort of trade isn’t suitable for everyone.
Why Is Didi Delisted?
Didi held its IPO in June 2021, though experts in Chinese markets and certain Chinese regulatory agencies recommended delaying or scrapping the plan altogether.
There were signs that the Chinese government intended to disrupt Didi’s operations if the IPO went forward, and many US analysts thought rushing onto the New York Stock Exchange was unwise.
Nonetheless, Didi elected to proceed with the IPO, and investors responded enthusiastically. The company, which had been valued at $62 billion the previous August, immediately spiked to $80 billion before dropping to close its first day of trading at just under $68 billion. With more than $4 billion raised, DIdi landed itself on the top 20 list of the largest IPOs in US history.
Within days of the IPO, the news came that the Cyberspace Administration of China (CAC) was beginning an investigation into Didi’s network security. The CAC’s concerns centered around the possibility that sensitive consumer information could be disclosed to other countries, including the United States. Many market experts also suspected that the Chinese government was unhappy that Didi completed an IPO against its wishes.
Didi’s rideshare app was banned from app stores pending the investigation’s results, and Didi stock immediately started to fall. The company quickly lost 90 percent of its value, and shares eventually bottomed out at $1.37. The investigation dragged on, and Didi finally realized that it could not resume normal operations until the investigation was complete.
In May 2022, the company announced that its stock would be delisted from the NYSE. It explained to its shareholders that it would trade on the Hong Kong Exchange instead.
Though delisting from the NYSE has already taken place, it could be some time before shares begin trading on the Hong Kong Exchange. That leaves shareholders in a difficult spot, but all is not lost.
In early June, Didi stock suddenly went up. The recovery continued, and within a month of the delisting announcement, Didi stock doubled in price.
Why Did Didi Stock Go Up?
On June 6, 2022, just days after Didi filed the paperwork necessary to delist its stock, the Wall Street Journal shared some surprising news.
According to unnamed sources, the Cyberspace Administration of China (CAC) planned to finalize its investigation into Didi’s data collection and sharing practices. That means Didi’s app can once again be downloaded from app stores, and Didi can begin adding new users – both critical to the company’s success.
It appears that other companies under investigation, including Full Truck Alliance and Kanzhun, will also be permitted to return their apps to Chinese app stores.
Investigations into software and logistics company Baozun and data center provider GDS Holdings Limited will also wrap up. In short, the Chinese government’s war against big tech may be over – and that’s great news for Chinese tech companies and their shareholders.
What Does Didi Stock Price Increase Mean For Chinese Stocks?
The timing of the CAC’s resolution of the Didi investigation lends credence to the theory that the investigation was a punishment for Didi’s decision to list its shares on a US exchange. However, larger economic factors likely influenced the Chinese government’s decision to pull back on the pressure it has placed on the Chinese tech industry over the past year.
China was particularly hard hit by the pandemic in 2020, and cases spiked again in early 2022. That led to new lockdowns and other restrictions, which depressed the country’s economic output.
It doesn’t look like China will be able to achieve the GDP goals it set for 2022 – at least not without the help of big tech. The government may have reconsidered its strict policing of Chinese tech companies in an effort to encourage tech growth and the growth of the larger Chinese economy.
That’s good news for all of the major Chinese stocks, including big names like Alibaba, Baidu, JD.com, Pinduoduo, Tencent, and Vipshop. But there’s a caveat. Many of these stocks may still be delisted if Chinese regulators and US regulators cannot resolve their differences in accounting methods.
Fortunately, Chinese regulators appear relatively confident that an agreement will be reached before the US follows through on its delisting threat. If so, buying Chinese stocks at their current low prices could lead to substantial long-term returns.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.