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Didi, the biggest IPO of a monster week, sees stock struggle slightly in debut

By Levi Sumagaysay

Chinese ride-hailing giant whose 'business model is just as unprofitable as Uber and Lyft' can't hold on to initial pop after raising more than $4 billion

Didi Global Inc.'s shares debuted on the U.S. public market with a nearly 20% pop Wednesday, but ended just 1% higher than the initial public offering price amid a wave of pre-July Fourth IPOs.

Didi opened at $16.65 Wednesday morning after declaring an offering price of $14 a share, and moved as high as $18 a share in early sales, but quickly headed south. The stock finished regular trading at $14.14.

Didi raised $4.4 billion by selling 316.8 million shares, more than the 288 million American depositary shares it had planned to offer. It was the largest IPO on a day when at least 10 companies had their trading debuts, including legal-tech provider Inc (link).(LZ) and cybersecurity company SentinelOne Inc (link). Eleven deals have already priced this week -- not including special-purpose acquisition companies, or SPACs -- for a total raise of $7.73 billion, according to Dealogic, which also said this week is the busiest for deals so far this year, with more offerings still expected.

See: U.S. IPO market braces for 17 deals this week, and at least two of them are worth more than $1 billion (link)

The company's market cap reached nearly $80 billion during Wednesday's session but fell to about $68 billion at close, putting it behind U.S. counterpart Uber Technologies Inc. (UBER), which has a market value of about $95 billion. Didi, which was founded in China in 2012, bought Uber's Chinese business in 2016, and has since grown to serve 377 million annual active users in China alone while operating in 15 other countries. Besides ride-hailing, the company has delivery and freight businesses and more.

For more: 5 things to know about Didi as it goes public (link)

In its IPO filing, Didi touted tremendous possibilities in its home country, saying "China's massive and urbanizing population presents opportunities for new mobility services."

Analyst Santosh Rao of Manhattan Venture Research agrees.

"Didi is in a dominant position in one of the biggest mobility markets worth $873 billion with 4.1% shared mobility penetration," he wrote in a note to investors. He also referred to a projected $3.9 trillion market in that nation by 2040, and said Didi is "well placed to gain significant traction" elsewhere, including Latin America and Europe, the Middle East and Africa, as well as Asia.

But David Trainer, chief executive of investment research firm New Constructs, wrote in a note that "despite holding roughly 90% of the ride-sharing market in China, Didi's business model is just as unprofitable as Uber and Lyft (LYFT). Uber and Lyft have shown investors that ride-sharing is not a profitable business."

While Didi turned a profit in the first quarter, reporting net income of 5.49 billion rembini ($837 million) on revenue of RMB 42.16 billion ($6.44 billion), that was largely due to investment gains. Didi has reported annual losses of RMB 10.6 billion, 9.7 billion and 15 billion for the past three years.

See: Didi files for IPO with something U.S. rivals haven't offered: profit (link)

Atlantic Equities analyst Xiao Ai initiated coverage of Didi (link) with an overweight rating and a stock-price target of $25, and also cited the company's dominance of the Chinese ride-hailing market.

The company's dominance was noted as a risk factor in its IPO filing. Didi is among the tech companies being investigated by the Chinese government over antitrust concerns (link).

In the United States, Didi is not in the ride-hailing business but has a research and development office in Silicon Valley that's mostly focused on autonomous vehicles, according to a spokesman for the company.

Of the three publicly traded ride-hailing giants, the smallest, Lyft, fared the best during its stock market debut (link), when it saw its shares rise nearly 9%. Uber's shares declined more than 7% on their first day of trading (link) in May 2019. Lyft shares are now down 23% since they started public trading, while Uber shares are up nearly 21% since the company's IPO.

-Levi Sumagaysay; 415-439-6400;


(END) Dow Jones Newswires

07-01-21 0829ET

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