Didi's mega IPO party gets cut short, as China blocks app downloads and signups

Wednesday, July 7, 2021 by Robinhood Snacks | Disclosures

Cancel the IPO honeymoon... Celebrations didn't last long for Didi Chuxing. Last week, the Chinese ride-hail giant raised $4.4B in the largest US IPO of the year — and the biggest IPO by a Chinese company since ecomm giant Alibaba in 2014. Didi notched a $68B market cap on its first trading day (two-thirds of an Uber). But that's how it started.

  • How it's going: Not well. Over the weekend, Chinese regulators ordered Didi to stop adding users and told app-store operators like Apple to take down Didi’s China service.
  • Why: China's explanation was vague, but regulators said Didi collected personal info “in violation” of the country's rules. Now, China is carrying out a cybersecurity review.
  • Didi's stock plunged 20% yesterday. BTW: two other recently IPO’d Chinese companies, Full Truck Alliance and Kanzhun, are facing the same restrictions.

Control > success... Five years ago, China might've hailed Didi's blockbuster IPO as a source of national pride. This year, China is driving the flops of its own biggest IPOs as it reminds tech companies who's in charge:

  • Strike 1: The infamous Ant Group squashing. China halted the fintech giant's mega-IPO, and pressured it to restructure its biz.
  • Strike 2: China ordered 34 of the country's largest tech cos, including TikTok-owner ByteDance, to comply with anti-monopoly laws or face “severe punishment."
  • Strike 3: China's antitrust regulator slapped Alibaba with a record-breaking $2.8B fine.

The theme has shifted for investors... It used to be: "Invest in China's growth opportunity." Now it's more like: "Invest in China at your own risk." Didi warned of this risk in its IPO filing, saying that if the Chinese government changes its interpretation of regulations or finds that Didi isn't compliant, the company could face "severe penalties." Zooming out, investors' opportunity is the growing size of China’s consumer market. The risk is the Chinese government's growing oversight.