Ride-Hailing Giant Didi’s Business Stagnates Following China Crackdown

  • China
  • January 1, 2022
  • 831
  • 4 minutes read

Didi Global (NYSE: DIDI), the Chinese ride-hailing giant, has seen its business stagnate following a crackdown by the Chinese government on the heavyweights of its tech industry. The crackdown affected Didi significantly, such that Chinese regulators banned it this July from the local app stores for supposed cybersecurity concerns.

The ban came shortly after Didi held an initial public offering (IPO) in the US that raised $4.4bn. Since then, the company has had a rough ride on the public markets. Didi announced plans to delist from the New York Stock Exchange this December and move to the Hong Kong Stock Exchange near its homeland.

  • Didi has dropped its latest quarterly financial report, showing a noticeable drop in revenue and spiraling losses following China’s crackdown. The company posted a $4.7bn net loss in the three months ended September 2021, compared to a profit of $105mn in the same period of 2020. In this year’s third quarter, its revenue was $6.6bn, down slightly from $6.8bn in the same period of 2020.

 

  • Summing up the nine months ended September 2021, Didi’s financials look bleak. It posted a cumulative net loss of $7.6bn in that period, compared to $530mn in the same time frame of 2020. The app store ban made it unable for Didi to add new users, but did’t affect its existing user base. It’s not surprising that lack of user growth led to Didi posting big losses.

 

  • A company like Didi depends on growth to appease investors and justify its losses, but with the Chinese app store ban, it’s unable to show that. Investors have bailed out en masse on Didi, sending its shares down almost 70% from a peak market capitalization of $80bn to $25bn currently.

With a stagnating business, the way out for Didi is to appease the Chinese government, which has embarked on a months-long investigation into the ride-hailing giant’s data security practices. Didi isn’t the only tech company caught up in China’s crackdown on the sector. Other local tech giants like Alibaba and Meituan Dianping have been fined huge sums ($2.8bn and $530mn respectively) for alleged monopolistic practices.

Overall, China is tightening the rules for local tech companies seeking to list shares abroad, requiring them to register first with the country’s securities regulators and get a clearance before proceeding on a foreign listing. There have been proposals of giving the government the right to block any foreign listing on the grounds of national security or internal disputes and other issues within the company.

  • Along with its financial results, Didi also announced a board reorganization. Alibaba’s CEO, Daniel Zhang, has stepped down from Didi’s board, and replaced by another Alibaba executive, Yi Zhang, who is a top lawyer at the company.

Leave a Reply

Your email address will not be published.