- DiDi Global (DIDI) might seem cheap following its massive decline.
- However, the company faces elevated risks from delisting, secular headwinds, and weak profitability.
- DIDI stock is not investable for the time being.
Source: DANIEL CONSTANTE / Shutterstock.com
DiDi Global (NYSE:DIDI) is a leading Chinese rideshare and delivery company that went public less than a year ago. DIDI stock started trading in July 2021 with its initial public offering (IPO) starting at $14 per share.
Incredibly, shares are now down a stunning 87% inside of a year. Even after the shocking plunge, unfortunately, DiDi is still too fraught with risk to be worth buying.
DIDI Stock Will Delist Soon
Earlier this week, DiDi shareholders approved a plan to delist the stock from the New York Stock Exchange. DiDi intends to file its delisting form with the NYSE around June 2, with trading ceasing 10 days after that. The company’s primary listing will then move to the Hong Kong exchange.
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DiDi claims this is necessary as part of its “rectification” process with the Chinese government. Many DiDi apps have been removed from platforms in the country due to alleged cybersecurity risks. Removing DIDI stock from the NYSE is supposed to be a step toward regaining the Chinese government’s favor.
For U.S. investors, however, this is likely to be bad news, especially for owners that end up with over-the-counter shares. Companies that aren’t on a major exchange tend to have much lower trading volume, and the stock price drops accordingly. On top of that, some brokerages block trades of delisted stocks altogether.
DIDI Stock Faces Serious Challenges
The ridesharing industry has not reached the levels of profitability investors had hoped for. It’s been harder and more expensive to retain drivers than expected; that’s a situation which has only worsened over the past year.
Harsh competition between various delivery and ridesharing firms has kept pricing down. Additionally, the food delivery space in particular has had far worse unit economics than investors might have expected.
Another big obstacle has been Covid-19. The pandemic hit all ridesharing companies hard in 2020 and 2021. However, in most markets, business has really picked back up as local businesses have reopened.
But in China, many people remain under strict lockdowns due to the country’s more stringent Covid-19 containment policies. These are preventing DiDi from seeing the sorts of traffic recovery that others like Uber (NYSE:UBER) have enjoyed.
Large Operating Losses at DiDi
Over its past four quarters, DiDi has generated operating losses ranging between $838 million and $3.8 billion. The latter figure was impacted by one-off expenses, but regardless, this is a company that is losing roughly one billion dollars every three months.
The scale of these losses is staggering. The company’s operating losses are substantially larger than its total gross profit. This is a rare and very bad sign for a large consumer-facing firm. You can’t tinker with a business model that’s that far underwater — you have to totally reimagine it from the ground up to have any chance of turning things around.
In a vacuum, maybe DiDi’s problems could be fixable. Large operating losses alone won’t sink a company as long as it can raise fresh capital.
However, how is it going to raise capital when it isn’t even on the New York Stock Exchange anymore? On top of that, why would investors back a Chinese ridesharing firm at a time when much of the country remains under lockdown?
DiDi simply has too many major problems and too few financial resources to deal with them. The clock is ticking for DIDI stock.
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On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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