The ‘Uber of China’ and the largest ride-hailing company in the world is facing quite a few challenges so is now the time to invest?
On June 30, DiDi Global (NYSE: DIDI) went public as the biggest Chinese IPO in seven years. Founded in 2012, the company has grown to be the world’s leading ride-hailing company with nearly 500 million users and over 15 million drivers. Tapping a much-needed market that was discovered during a heavy snowstorm, DiDi quickly grew to acquire 55% of the Chinese market by 2013 and garnered attention and funding from investors like Tencent, Alibaba, and Apple.
In 2016, to eliminate its biggest competitor, Uber, DiDi acquired Uber China by offering its parent a 17.1% stake in its own company. The gambit paid off and today DiDi controls over 90% of the Chinese market. Currently, DiDi is facing a slew of regulatory challenges ranging from data concerns to antitrust investigations. Considering all this, is now the right time to invest in DiDi Global?
The bull case for DiDi Global
DiDi is raising $6 billion dollars for its autonomous vehicle (AV) unit as it expects to have one million AVs by 2030. That’s a substantial footprint for a market that is projected to be worth $2.5 trillion by 2040 and DiDi already has a fleet of 100 AVs testing in the field. You need look no further than the roster of Didi’s investors to see that the company definitely has potential as the number one service in its sector in the most populous nation on earth. With the Chinese government limiting the number of new vehicle registrations to curb congestion and pollution, DiDi further stands to profit.
The company did take a hit during the pandemic but rebounded quite nicely and made its first-ever profit of $30 million last quarter. Along with ride-hailing (which operates in 15 international markets including South America, Russia, Australia, Japan, and South Africa), DiDi also offers freight and food delivery services along with a bike-sharing program. Finally, the company’s current stock price is currently discounted at 23% below its all-time high.
The bear case for DiDi Global
The reason DiDi’s stock price is so depressed is that shortly after going public it came to light that Cyberspace Association of China (CAC) had told the company to delay listing until a full investigation was conducted on its security. The government had a right to be worried as DiDi collects over 2,000 terabytes of data daily (2017 figures) on the country’s traffic patterns and infrastructure and that can certainly be construed as a national security issue. The authority restricted listing the company’s apps in any of China’s app stores, effectively stopping any new business for DiDi.
To top it off, since DiDi failed to disclose a potential regulatory investigation that would affect its stock price, it has opened itself up to potential investor lawsuits. Additionally, China’s antitrust regulator, the State Administration of Market Regulators, is investigating DiDi for unfair competitive practices. The company was also slapped with fines for again, failing to report, this time to China’s antitrust authority about its merger with Uber China in advance. Not a good look for a company that just went public.
So, is DiDi Global a good investment?
As the market leader in the number one mobility market in the world, DiDi is on the path to big gains as it has already invested a great deal in technology and continues to invest in its AV future. Furthermore, its troubled past has forced management to concentrate on greater safety initiatives further bolstering its offerings. Finally, the company will expand to other territories, already targeting Germany, France, and the U.K. for this year and its stock price is cheap.
1. What does ‘DiDi’ mean?
It translates to beep-beep.
2. What is the projected value of the mobility market?
$16.4 trillion by 2040.
3. Who is the CEO of DiDi Global?
Founder and current Chairman Cheng Wei.
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