Following an early initial public offering (IPO) state of bliss, the Chinese ride-hailing and delivery group DiDi Global (NYSE:DIDI) has left its investors with little cheer. On June 30, DIDI stock made a historical public debut, the second-biggest U.S. IPO by a Chinese company after Alibaba (NYSE:BABA).
DIDI stock started trading at $16.65, notably higher than its IPO price of $14, and hit a peak of $18.01 during the same session. However, shares took a nosedive shortly after, mainly due to Chinese regulators’ tech crackdown on the grounds of cybersecurity concerns.
On July 26, DIDI stock saw $7.16, a record low. It currently hovers around $7.80. Therefore, today’s article looks at what investors could expect from DiDi shares in the coming months.
Mobility Platforms Are In The Limelight
Smart mobility services worldwide have been gaining traction in the past decade. Research by Arthur D. Little highlights: “Enabled by ubiquitous connectivity, ever more powerful smartphones, and cloud- hosted applications, private ‘on-demand’ ride-hailing platforms – called transport network companies (TNCs) in the United States – have changed the urban mobility landscape for good.”
However, pandemic-related lockdowns initially dealt a major blow in global ride-sharing sector. In 2020, the market size was around $43.2 billion.
Now, with economies opening up in 2021, the momentum has once again turned positive. The market could potentially reach $153 billion by 2027, at a compound annual growth rate (CAGR) of close to 20% between 2021 to 2027.
In addition to DiDi Global, other major players in the sector include Uber (NYSE:UBER), Lyft (NASDAQ:LYFT), BlaBlaCar, Curb, GrabTaxi, Via, as well as Yandex.Taxi, which was initially launched by Yandex (NASDAQ:YNDX) and has merged with Uber in certain global markets. They all concentrate on increasing their market shares globally, and some have also diversified into other services such as online food delivery platforms.
To put it another way, DiDi is an important player in a high-growth sector. However, China’s recent regulatory crackdown casts a big shadow over future prospects for the platform. In fact, recent reports suggest, “Chinese regulators have asked Didi to come up with a plan to delist from the New York Stock Exchange.”
InvestorPlace.com contributor Alex Sirois recently wrote in detail how the price of DIDI stock could go to zero in the case of delisting. Therefore, any potential investors in DiDi shares need to appreciate the regulatory risk that could make DIDI a penny stock.
Adding DIDI Stock to Portfolios
Given the reality of a potential grim future for DIDI stock in the U.S., buying DiDi Global would not be appropriate for most retail investors. However, interested readers could consider buying an exchange-traded fund (ETF) that provides exposure either to DIDI stock or to mobility and ride-hailing platforms. Examples include:
- ETFMG Travel Tech ETF (NYSEARCA:AWAY): down 8.5% year-to-date (YTD);
- iShares MSCI China ETF (NASDAQ:MCHI): down 19.8% YTD;
- iShares Core MSCI Emerging Markets ETF (NYSEARCA:IEMG): up 0.5% YTD;
- iShares Transportation Average ETF (BATS:IYT): down 3.71% YTD;
- SoFi Gig Economy ETF (NASDAQ:GIGE): down 15.5% YTD;
- SPDR S&P China ETF (NYSEARCA:GXC): down 18.1% YTD;
- SPDR S&P Transportation ETF (NYSEARCA:XTN): up 26.9% YTD.
Investing in such a fund that has DIDI stock would enable readers to avoid full exposure to the risks posed by Chinese regulatory challenges. And those ETFs that concentrate on other mobility platforms would enable investors to benefit from the double-digit growth rates the segment could see in the years ahead.
The Bottom Line on DIDI
The ride-sharing giant has been under tremendous pressure lately. According to data solutions platform Aurora Mobile (NASDAQ:JG), Didi lost 30% of its daily users since the crackdown in July. Furthermore, in August the company decided to suspend its European expansion plans for at least another year over the U.K.’s government’s concerns about China accessing local user data.
Meanwhile, on Nov. 11, Reuters announced that Didi’s data investigation was about to end and apps in China are expected to relaunch soon. However, management denied those claims.
But there could also be some good news for the company as DiDi could be cleared to list its shares in Hong Kong. Nonetheless, such a listing may not necessarily benefit DIDI investors stateside.
Consequently, while DiDi Global will likely continue to grow, there isn’t much evidence that China would lift the regulatory pressure anytime soon. Therefore, investing in DIDI stock is a speculative play at this point.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.