Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money

66% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

  • Updates
  • china tech
  • disruptive innovation
  • electric vehicles

Can Didi’s share price accelerate post IPO?

Didi’s [DIDI] share price closed up last week, capping an incredible first week’s trading that took in both a blockbuster IPO and unexpected regulator scrutiny.

The Chinese ride-hailing firm raised close to $4.4bn on its US debut last week, making it one of the biggest foreign debuts since the 2014 Alibaba [BABA] listing, the Financial Times noted. The company sold shares at $14 each, to give the firm a valuation of circa $67bn - that’s around the $65bn valuation the firm had attracted in a private funding round.

Didi’s share price started trading at $16.65 in its initial pop to give it a market cap of around $80bn. However, the stock had pulled back by the end of the day to close at $14.14. Thursday saw Didi’s share price bounce back, at one point hitting $16.40 in intraday trading, but by the end of the week, the stock tumbled, closing Friday at $15.53 as news broke that China’s cybersecurity regulator had launched an investigation into the company.

Didi’s share price hit by regulator post IPO

Didi is the latest Chinese tech company to feel regulatory scrutiny as Beijing tries to rein in the sector. The Cyberspace Administration of China made the sudden announcement on Friday, saying that the investigation was to “safeguard national data security and protect national security”.

A condition of the investigation is that Didi would have to stop registering new users for the duration of the investigation. According to the Financial Times,  this can take up to 30 days, with 15 days lumped on for complex cases. Didi’s share price tanked 11% when it opened Friday morning in New York, before regaining some of the losses.

Despite the strong demand seen in the first few days of trading, the first day’s valuation marks a comedown from initial expectations. According to the Wall Street Journal, Didi was looking to raise between $5bn to $10bn, while the Financial Times puts this number at $7bn — both publications cited unnamed sources. 

$7billion

Amount Didi was looking to raise in its IPO

  

Back in March, speculation among investors was that Didi would hit a $100bn valuation. That wasn’t to be, with concerns over tensions between Beijing and Washington, profitability and a glut of IPOs causing Didi to lower expectations.

Investors, however, have appeared to dismiss these concerns, with Didi selling more shares than expected at the top-end of its range.

Among those benefiting from Didi’s IPO are SoftBank [9984], which has a 20% stake in the firm and Uber [UBER], which owns 12% of the company. Uber’s ownership comes after it agreed to sell its Chinese business to Didi.

 

Is Didi’s share price good value?

One bet being made right now is that ride-hailing companies will recover as lockdown measures are lifted.

Didi has seen a recovery in fortune in the first three months of 2021 after last year’s drop in sales, with revenue coming in at $6.4bn for a $95m profit in the first quarter. In the same period, Uber’s net losses were $108m on $2.9bn of revenue.

Pre-pandemic, Didi posted revenue growth of 11% between 2018 and 2019 — and investors will be hoping for a return to these levels to drive the share price upwards. However, Didi being investigated by the regulator couldn’t have come at a worst moment.

“Didi is a preeminent brand in China - it’s going to stay that way. I think [Didi’s share price] very reasonably priced when you compare it to Uber and Lyft” - Eric Jackson, founder of EMJ Capital

 

For investors interested in ride-hailing companies, Didi could represent better value than Uber and Lyft [LYFT]. Eric Jackson, founder of EMJ Capital, told CNBC’s Market Alert: “Didi is a preeminent brand in China — it’s going to stay that way. I think [Didi’s share price is] very reasonably priced when you compare it to Uber and Lyft,. At this price now — $67m market cap — that’s about 3X trailing revenues. You’re paying 9X for Lyft, 8X for Uber. So although people can wring their hands about the Chinese government and so forth, that’s what you’re getting the discount for.”

Jackson added that he doesn’t agree when people say Didi has no room for growth, pointing out that investing in Didi is a bet on the continued rise of China’s middle classes and the country’s tier two and three cities, which Didi will “benefit from … in years to come”.

The analyst said he would wait until things had calmed down before deciding whether to buy the stock, but added that Didi was a “phenomenal company”.  Should the dust settle post-IPO and regulatory scrutiny, Didi’s share price could be good value right now.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

  • Includes free newsletter updates, unsubscribe anytime. Privacy policy

Free ebook

Tricks of the trade: 7 interviews with the world’s top traders

Get it now

Related articles