Shares of Chinese ride-hailing giant Didi Global (DIDI) jumped on Thursday, accelerating after a slower start to trading on the New York Stock Exchange a day earlier.
The stock gained 16% to close out the session at $16.40 apiece. On Wednesday, the stock opened at $16.65 per share in its debut on the U.S. exchange, but pared gains to end at $14.14 per share, or just 1% above the initial public offering price.
Didi priced its IPO Tuesday evening at $14 a share, giving the company a fully diluted valuation north of $67 billion. The firm raised $4.4 billion through the offering, in the largest IPO of a Chinese company in the U.S. since Alibaba's (BABA) $25 billion listing in 2014.
The modest move higher in the stock's first day of trading belied the anticipation surrounding Didi's IPO in the months leading up to it. The company has matured into a tech behemoth in China, edging out Uber (UBER) and becoming by far the biggest ride-hailing player in the world's second-largest economy. Uber sold its Chinese business to the company in 2016 and still retains a stake in Didi. Didi has also won the backing of major investors including SoftBank and Tencent. And it has also redoubled its efforts in building out electric and autonomous vehicles to add to its core ride-hailing efforts.
"I think it underscores two things: Ride-hailing as a sector is really turbulent. The path toward profitability remains unclear," Howard Yu, IMD Business School professor of management and innovation, told Yahoo Finance of the stock's public debut. "And in the case of Didi, no doubt is it the king in ride-hailing in China, and yet the politics behind [it] and the increased scrutiny of tech giants in China casts a long shadow to a very promising company."
Like other companies including Alibaba, Didi has been subject to the Chinese government's crackdown of domestic technology giants. Concerns over antitrust violations and monopolistic behavior have been at the core of the clampdown. In its prospectus to go public, Didi acknowledged meeting with China’s market regulators earlier this year and wrote that it "cannot assure you that the regulatory authorities will be satisfied with our self-inspection results or that we will not be subject to any penalty.”
And as a Chinese company, Didi also faces regulatory concerns in the U.S. Both chambers of Congress have recently passed legislation requiring that foreign companies have their financials audited to ensure compliance — a move China's government has contended. Firms that fail to comply could face delisting from U.S. exchanges.
Didi's financial results have also fluctuated over the past several years, with the pandemic weighing on what had been an upward trend in growth. Revenues were 141.7 billion yuan, or $21.6 billion, in 2020, compared to 154.8 billion yuan, or nearly $24 billion, in 2019. Net losses widened to 10.6 billion yuan, or $1.6 billion, in 2020 from 9.7 billion yuan, or about $1.5 billion, in 2019.
"Just because you build a platform business — although they're very hot — doesn't mean that all platforms can be as profitable as Google or Facebook and all that," Yu added. "By definition, ride-hailing or ride-sharing is a local business, and that played out in the case of Didi. They're very big in China, but elsewhere, they're not that successful."
Still, Didi operates across 15 countries and in a total of about 4,000 cities, counties and towns, and has cited a $3.9 trillion mobility market opportunity by 2040 in China alone. Average daily transactions totaled 41 million in the 12 months ended in March 2021, and a total of 493 million annual active users were on the platform over that period.
—
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
Read more from Emily: