DiDi Global (DIDI 2.53%), China's largest ride-hailing company, went public on June 30, 2021, at $14 per share. But the stock now trades at about $2 -- so a $10,000 investment in its initial public offering (IPO) would only be worth $1,400 today. Let's revisit DiDi's precipitous decline and see if there's any hope left for the bulls.
Why did DiDi's stock collapse?
A few days after DiDi's public debut on the New York Stock Exchange (NYSE), the Cyberspace Administration of China (CAC) abruptly ordered the suspension of new user registrations for all 25 of its apps. Shortly afterward, all of DiDi's apps were removed from China's mobile app stores.
The CAC cited vague cybersecurity, data protection, and national security concerns as its main reasons for cracking down on DiDi, but the platform's existing users could still access their downloaded apps.
Meanwhile, China's antitrust agency, transportation ministry, and public security bureau co-drafted new guidelines that forced DiDi and other ride-hailing platforms to reduce their commissions, provide better wages for drivers, and limit their collection of personal data from passengers.
That one-two punch, which crippled DiDi's ability to gain new users while forcing it to increase its expenses, caused investors to head for the exits.
Last December, DiDi announced that it would delist its NYSE shares and pursue a new listing in Hong Kong. At the time, many investors assumed that meant the CAC would finally lift its restrictions on new user registrations and allow DiDi to relaunch its apps across China's mobile app stores.
But last month, DiDi suspended its plans for a Hong Kong listing after its apps failed to meet the CAC's data privacy and cybersecurity requirements again. On April 16, the company said it would not pursue any new public listings before it delisted its shares from the NYSE. However, it also said it would hold a shareholder vote on May 23 for those delisting plans.
Simply put, investors still don't know what will happen to DiDi. That's why it trades at just 0.4 times this year's sales. Uber Technologies and Lyft trade at 2.3 and 2.8 times this year's sales, respectively.
Could DiDi be a deep value play?
DiDi is a very risky investment right now, but its underlying business remains stable even as regulators throttle its domestic growth. Its revenue rose 14% in 2019, dipped 8% in 2020 as the pandemic spread, but increased 23% to 173.8 billion yuan ($27.3 billion) in 2021.
Its "China mobility" (the ride-hailing segment) revenue, which accounted for 92% of its top line, rose 20% last year. However, its loss more than doubled on an adjusted earnings before interest, taxes, and amortization (EBITA) basis to 19.2 billion yuan ($3 billion), with the losses from its international and "other initiatives" segments wiping out the profits of its domestic business.
Analysts expect DiDi's revenue to rise 3% to 179.6 billion yuan ($28.2 billion) this year, even as it's barred from gaining new users or downloads in China, and for its EBITA loss to narrow to 10.5 billion yuan ($1.7 billion) as its reins in its expenses. However, the recent COVID-19 lockdowns across China could make it much tougher for DiDi to hit those targets.
But if China's regulators finally allow DiDi to relaunch its apps, its growth could accelerate significantly as the current lockdowns end. Furthermore, DiDi's recent decision to have investors vote on its "voluntary" delisting plans suggests it might still postpone (or completely cancel) that exit.
China's securities regulator also recently said DiDi made its delisting decision on its own accord, which suggests the government won't prevent the company from reversing its initial decision to leave the NYSE.
If any of those positive developments occur, DiDi's stock could potentially reverse a large portion of its post-IPO decline. However, the company could also still try to take itself private with a lowball offer and burn most investors who prematurely thought it was a deep value play. So for now, the risks still outweigh the rewards and make DiDi a very dangerous stock to own.