Shares of DiDi Global (NYSE:DIDI) surged more than 65% today on news that regulators in China are ending their crackdown of the ride hailing giant. Reports surfaced over the weekend stating that authorities in Beijing plan to lift a ban on DiDi in the coming week and reinstate its domestic app used in China to book rides and order food deliveries. Prior to today, DIDI stock had declined 85% since its initial public offering (IPO) last summer to trade at $1.85.
Pressured by Chinese regulators, DiDi Global said last December that it plans to delist its shares from the New York Stock Exchange and seek a new listing in Hong Kong. However, the exact timing for that move is unclear.
What Happened in DIDI Stock
Since the end of 2020, China has tightened regulations pertaining to its domestic technology sector, focusing on antitrust issues and data protection. DiDi Global, along with other large publicly traded companies such as Alibaba (NYSE:BABA), were singled out for punishment.
Last year, the ride-hailing firm went public in the U.S. But just days after its successful IPO, Chinese regulators announced they had opened a cybersecurity probe into the company. In July 2021, the Cyberspace Administration of China (CAC) accused DiDi of illegally collecting users’ data and ordered its app removed from all Chinese app stores, causing DIDI stock to crater.
DiDi Global is now expected to be issued a large fine by Chinese authorities. Once the fine is paid, it will end the regulatory probe into the company, freeing it to operate normally and restoring its app in domestic stores.
Why It Matters
The Chinese government seems to be easing its crackdown on technology companies, and this is seen as extremely positive by investors. Going forward, DiDi will be able to operate normally, providing the company with a steady stream of revenue.
The move by Chinese regulators comes as the nation struggles with economic fallout from weeks of Covid-19 lockdowns, particularly in financial and manufacturing centers such as Shanghai. Government authorities now seem to be too busy with the domestic economy to concern themselves with privately run companies such as DiDi.
While the easing of the crackdown in China is positive, DiDi revealed in May of this year that it is being investigated by the U.S. Securities and Exchange Commission (SEC) in relation to its IPO. The SEC investigation remains ongoing and unresolved, and it could lead to punitive action against DiDi Global depending on what is ultimately found by American authorities.
What’s Next for DIDI Stock
Today’s jump in the DIDI stock price is impressive. However, investors should keep in mind that it is still a penny stock that was trading at less than $2 per share until now.
It is also a volatile security, and the Chinese government is known to be unpredictable. As the SEC investigation of DiDi Global continues, the situation with DIDI stock could change quickly.
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On the date of publication, Joel Baglole 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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