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China’s latest blockbuster technology IPO could give investors Bumpy Ride

Didi, a Chinese ride-hailing service company, is heading to the stock market. It may not be cheap to ride.

On Thursday, a Chinese company filed for listing in the United States on a deal that could give the company a valuation of over $ 70 billion, making it one of the largest initial public offerings in the world this year. This deal could help bring the US IPO market back to higher gear. After a strong start this year, it has recently slowed down. Technology stock valuations have also receded from their peak. China’s tech stocks have been hit particularly hard by investors’ concerns over regulatory crackdowns from Beijing.

Diddy’s existing investor star-studded lineup has the potential to report significant profits.Softbank,

It has already enjoyed a plunge from the booming IPO market, but holds a 21.5% stake. Uber sold its Chinese business to Didi in 2016 in exchange for a 12.8% stake.

Similar to Uber and Lyft,

Diddy has lost money in the last three years, but last year’s results were also affected by the pandemic. We posted profits in the first quarter, which included $ 1.9 billion in return on investment, without which Diddy would still be in the red.

With a $ 70 billion valuation, Diddy is about 3.2 times more than last year’s revenue. It may seem cheap compared to Uber and Lyft, which trade about 8-9 times. However, Diddy’s ride-hailing service business in China, which accounts for almost all of its sales, includes driver revenue in its revenue, while Uber and Lift only include cuts. Given the difference, it makes sense that Diddy should trade at a much lower multiple of earnings. This is still an IPO priced for growth.

Given that Diddy is the only game in town for ride hailing in China, investors may want to own a share anyway. According to Euromonitor International, the company occupies 83% of the market.

But given China’s move to tighten antitrust scrutiny of tech companies, its nearly monopolistic position could also be a major goal. The company is not familiar with regulatory risk. In recent years, we have been involved in passenger safety scandals.

Diddy is also on the cusp of electric vehicles because of the low operating costs of EV drivers. Last year, we launched our own EV, the D1. Non-core business diversification efforts, including other countries and other segments such as online grocery stores, have so far been of limited success. These businesses accounted for only 7% of first-quarter revenue.

Investors who are afraid to miss a blockbuster IPO need to be prepared for a road crash.

Write to Jacky Wong (jacky.wong@wsj.com)

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China’s latest blockbuster technology IPO could give investors Bumpy Ride

Source link China’s latest blockbuster technology IPO could give investors Bumpy Ride

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