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Is DiDi Global Inc. (DIDI) A Buy After App Takedown in China?

On 4 July 2021, DiDi Global Inc. (DIDI) announced that according to the announcement posted by the Cyberspace Administration of China (the “CAC”) on July 4, 2021, the CAC stated that it was reported and confirmed that the “DiDi Chuxing” app had the problem of collecting personal information in violation of relevant PRC laws and regulations. Pursuant to the PRC’s Cybersecurity Law, the CAC notified app stores to take down the “DiDi Chuxing” app in China, and required the Company to strictly comply with relevant laws and regulations, follow the relevant standards set by the PRC government authorities, and rectify the problem to ensure the security of users’ personal information. Once the “DiDi Chuxing” app is taken down from app stores in China, the app can no longer be downloaded in China, although existing users who had previously downloaded and installed the app on their phones prior to the takedown may continue using it.

On 6 July 2021, DiDi Global Inc. (DIDI) ‘s stock price closed with -19.57%. Is it a good time to add DiDi Global Inc. in portfolio?

What is DiDi Global Inc. (DIDI)?

DiDi Global Inc. is the world’s largest mobility technology platform. The platform allows user to shared mobility with a comprehensive range of safe, affordable and convenient mobility services, including ride hailing, taxi hailing, chauffeur, hitch and other forms of shared mobility. Currently, the company is built up with four business units including shared mobility, auto solutions, electric mobility and autonomous driving. The company operates in nearly 4,000 cities, across 15 countries. The global platform provided services to over 493 million annual active users and powered 41 million average daily transactions for the twelve months ended March 31, 2021.

Market Opportunity

Global mobility market was a US$6.7 trillion market worldwide in 2020 and is expected to reach US$16.4 trillion by 2040, by which time the penetration of shared mobility and electric vehicles is expected to have increased to 23.6% and 29.3%.

China’s mobility market is expected to reach US$3.9 trillion by 2040, by which time the penetration of shared mobility and electric vehicles is expected to have increased to 35.9% and 50.2%.

Financial Highlights

Revenues were RMB135.3 billion, RMB154.8 billion and RMB141.7 billion (US$21.6 billion) in 2018, 2019 and 2020, respectively, and RMB42.2 billion (US$6.4 billion) for the three months ended March 31, 2021.

China mobility is the main revenue which accounting for 98.4%, 95.5% and 94.2% in 2018, 2019 and 2020, respectively. Global mobility accounting for 0.3%, 1.27% and 1.64% in 2018, 2019 and 2020, respectively. Other initiatives accounting for 1.23%, 3.14% and 4.06% in 2018, 2019 and 2020, respectively.

Net loss was RMB15.0 billion, RMB9.7 billion and RMB10.6 billion (US$1.6 billion) in 2018, 2019 and 2020, respectively. There was net income of RMB5.5 billion (US$0.8 billion) for the three months ended March 31, 2021. However, the net income for the three months ended March 31, 2021 was the result of RMB 12,361 million investment income.

Risk and Opportunity

As discussed in previous post “What You Need to Know About Xiaoju Kuaizhi Inc (DiDi) IPO?", DiDi Global Inc. ‘s operation is highly concentrated in China market. It’s global business only growth slowly over the past three years. App takedown in China will heavily affect DiDi Global Inc. ‘s business. On the other hand, DiDi Global Inc. isn’t profitable yet and its valuation is mainly base on it’s future growth. Moreover, lawsuit from US investor and further action from China’s regulator are still under uncertainty.

In view of opportunity, DiDi Global Inc. ‘s size and domination in China mobility market will help it to become an index component in nearby future. There is no doubt that global institute investor, such as index ETFs, will add DiDi Global Inc. in their portfolio.

Conclusion

After the App takedown, investing in DiDi Global Inc. is under high risk and uncertainty even there may be positive momentum when DiDi Global Inc. include in index. For long term investor, there may be a better candidates which have proved record of operation and profitability, such as Alibaba Group Holding Limited (BABA) and Tencent Holdings Limited (0700.HK).

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