DiDi Global Stock Has an Emerging Bull Thesis You Need to Consider
InvestorPlace - Stock Market News, Stock Advice & Trading Tips DIDI stock likely won't be hurt by Beijing any further because of one obvious reaso...
Shares of Chinese ride-hailing service DiDi Global (NYSE:DIDI) stock has not performed well in its short life.
By now, most are aware that the company was swiftly punished by Beijing after it went ahead with its IPO at the end of June.
I’ll note that the company does deserve some sympathy, in my opinion. DiDi was caught in a Catch-22 situation of satisfying the opposing desires of investors and regulators simultaneously.
But before delving into its future prospects, let’s appreciate how difficult and precarious that situation was.
Imagine being a prominent figure in a company attempting to go public. After actually taking the leap and deciding that an IPO is the right method, you then have a great task ahead: Convincing venture capitalists to direct their capital toward you.
The fact is, their deep pockets give venture capitalists leverage. Leverage is power, and power provides the benefit of many choices.
So once those venture capitalists chose DiDi it had to deliver. Everything looked great. DiDi had lined up investor capital months in advance of its late June IPO.
The wheels had long been in motion and the project had massive momentum.
Imagine again that you’re a member of the management team. Suddenly, after all of these forces align and the IPO is fully ready, your team receives notice from China’s cyber watchdog that it should delay its IPO.
China was already well into a regulatory crackdown at that time, so you know if you go ahead your company will be martyred. But the venture capitalists aren’t going to be happy if you tell them, “Oops!, something came up. Can we just wait?”
They’ll withdraw their capital and all will be lost.
DiDi tempted fate and went ahead with the IPO. For roughly 24 hours it looked like the company might be okay. It wasn’t as we now know.
A Closer Look at DIDI Stock
IPO prices dropped from $16 down to around $7.60, where they currently remain. DiDi is a buy-the-dip opportunity, but a particularly risky one.
A lot has transpired between its IPO, rapid downfall and the three-month interim.
In early September reports surfaced that Beijing’s state-owned tourism board could take a stake in the firm. Rumors at that time went as far as the tourism board potentially grabbing a so-called “golden share” of board rights with a seat and veto power.
Only days later DiDi was reported to have denied the rumors by other media outlets.
There has been little clarity regarding the matter since, and that puts investors in a Catch-22 at present. There’s a massive opportunity here: Average target prices for DIDI stock sit above $20.
Yet, the risk is as clear as day: Beijing’s regulatory might is obvious and has been on display since early this year. If it privatizes DiDi, that ostensibly invalidates any public investment in the company.
But my impression is that there is little chance of that. China’s tech and data-heavy companies (including DiDi) have tremendous private capital behind them. China has to balance that.
Balancing External Influence
China is pressing its internet companies to improve working conditions for their employees. This is particularly true for contract workers in firms like DiDi.
Part of the impetus in doing so has to be that it looks good from the perspective of foreign private capital.
Whether China wants to isolate itself or not isn’t the question here. The question is whether it is ready to make its internet companies look better for the purpose of attracting capital.
By improving contract workers’ rights, I assume it does. That bodes well for DiDi as a Chinese rideshare firm.
There’s a case for investing now in DiDi. There’s little to suggest China can simply pull back from the external world or that DiDi will stop growing. If you agree with that, then DiDi makes sense as a long-term buy-and-hold equity.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.”
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