Chinese ride-hailing firm Didi Chuxing (NYSE: DIDI) went public Wednesday, June 30. The company has been called the “Uber of China.”
After selling 317 million American Depository Shares (ADS), the Didi Chuxing IPO raised $4.4 billion as it priced on the high end of its expected range, $14. The company was valued at $73 billion total.
IPO investors were all over this one, oversubscribing the book and forcing Didi to increase the deal size. According to Reuters, the Didi IPO is the biggest U.S. share sale by a Chinese company since Alibaba Group Holding Ltd. (NYSE: BABA) raised $25 billion in 2014.
The Didi Chuxing IPO has created a major buy opportunity for American investors. The Alibaba IPO price was a whopping $68, and it still added a hefty 232% in a short time following its U.S. IPO. It trades at $226 today.
You can expect a similar pattern with Didi stock in the years to come. Here’s why.
What Is Didi Chuxing?
Didi Chuxing is an app-based ride-hailing service based in Beijing, China. The company has tens of millions of drivers serving over 550 million passengers.
Compare that to Uber Technologies Inc. (NYSE: UBER), coming in at 93 million users.
Like Uber, Didi offers private car hailing, bikes, and ride-share services. Unlike Uber, the company includes taxi hailing and aims for a more holistic vision of transportation.
The company offers on-demand delivery services, automobile sales and financing, and electric vehicle charging. But even more than that, it wants to pioneer autonomous driving and smart traffic lights. Smart traffic lights will communicate back and forth with vehicles, using data to “teach” vehicles to operate more intelligently over time.
Didi places great emphasis on future trends like artificial intelligence (AI), machine learning, (ML), and Big Data, which will all work together to give Didi a smarter fleet of vehicles. It could even place Didi in command of an entire transportation ecosystem.
Right now, the company operates Didi Research Institution to study AI and ML to that aim. It has a Didi Labs facility in both Beijing and Mountain View, Calif.
Didi was founded in 2012, starting with a $15 million investment from Chinese conglomerate Tencent (OTCMKTS: TCEHY). In 2015, it merged with Kuaidi Dache, a ride-hail company backed by Alibaba, and became the giant it is today.
In 2016, Didi acquired Uber China for $35 billion. As part of the deal, Uber was given stake in the company, which has since grown to about 15.4% since its last report.
Yes, Didi has all but gobbled up Uber’s China market share. And the Didi IPO could threaten Uber’s U.S. dominance even further, making Didi the potential world leader in ride-hailing.
That said, you should know some things before buying Didi stock today…
Is Didi Chuxing Stock a Buy?
CNBC’s Jim Cramer said Monday that investors should “get as many shares as you can.” With what we know about Didi, the company really could be the “Uber Killer.”
Whether or not Chinese companies will ultimately swallow their American counterparts is yet to be seen.
But we do know that Chinese companies want exposure to American markets. It’s just a matter of how they get there.
We already talked about Alibaba, China’s Amazon.com Inc. (NASDAQ: AMZN), selling $25 billion worth of shares on the NYSE in 2014.
Well, China’s DoorDash Inc. (NYSE: DASH) equivalent, Grab Holdings, is also coming to the United States via merger with a California-based SPAC, Altimeter Capital.
China’s Uber will be no different. These companies all deliver products as good or better than their American counterparts. They are designed to serve China’s gigantic population as it quickly approaches $2 billion over the next decade.
There’s no reason to think these cross-continental moves are anything but fierce competitive maneuvers by these Chinese firms.
And that’s how you get a slightly mixed bag buying foreign stocks like this. We’re not far removed from the 2020 tariff battle between the United States and China, when American companies were temporarily barred from working with their Chinese partners.
Of course, this has since been lifted, but this threat is always something to consider when investing in foreign stocks.
Without the international concerns, you have Didi’s domestic antitrust concerns under the Chinese Communist Party (CCP). The Chinese government is probing into the fairness of Didi’s road to market dominance – with pricing practices and transparency in question.
Then again, the CCP has also scrutinized Alibaba and Tencent, both dear friends of their government. Cramer says Didi will do fine as long as it can “stay on the Communist Party’s good side.” And it appears to be trying just that.
It launched a “Red Flag Steering Wheel” program in 2018 to verify that a driver is a Communist Party of China member. The company also pledged to hire 1,000 CCP members.
Didi reported collecting $21.6 billion in revenue last year. The company also said it turned a profit last quarter on $6.4 billion in revenue.
There is little holding Didi Chuxing stock back from hyperbolic growth over the next few years.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.