DiDi Reported $4.7 Billion Loss in Q3 Raising Concerns as It Plans Hong Kong IPO

DiDi Reported $4.7 Billion Loss in Q3 Raising Concerns as It Plans Hong Kong IPO
A logo of Chinese ride-hailing giant Didi Chuxing is seen at its headquarter in Beijing on July 2, 2021. (Jade Gao/AFP via Getty Images)

DiDi—China’s ride-hailing giant which announced on Dec. 3, 2021, that it would begin delisting from the New York Stock Exchange—suffered a loss of 30 billion yuan ($4.7 billion) in the Q3, leading to concerns about its plan to list in Hong Kong this year.

The company announced its Q3 revenue on Dec. 29, 2021, bringing its total losses for the first nine months of the year to $6.6 billion. DiDi’s revenue plummeted as it was banned from registering new users.

DiDi went public on the NYSE on June 29, 2021, despite warnings from the Chinese regime. On July 2, the State Internet Information Office announced that in order to “prevent national data security risks, safeguard national security, and protect public interests,“ the Office of Cyber Security Review (OCSR) implemented a cyber security review of DiDi in accordance with the ”Cyber Security Review Regulations” and stopped new user registration during the period. On July 4, the State Internet Information Office announced that Didi’s App would be taken down.

Li Chengdong, from China’s internet think tank Haitun, told The Financial Times, “new users can’t use Didi and old users who get new phones also can’t download it.”

On that same day as Didi announced its Q3 results, the company also announced the resignation of Daniel Zhang, the chief executive officer of Chinese e-commerce giant Alibaba, who had served as a director on DiDi’s board since 2018.

Jun Wang, former director of the international department of Beijing Unirule Economic Research Institute, a private think tank in China founded in 1993 by five economists, told The Epoch Times that there have been no new users in DiDi’s domestic market since the official announcement. The authorities have simply made it impossible for Didi to attract new customers.

“Now people can’t even register to the app, it'll be lucky if they can keep their old customers, and they may lose them, that is to say, they may be attracted to Didi’s competitors. There are now several online taxi companies in mainland China, one is called T3, which is particularly popular in Jiangsu and Zhejiang provinces, as well as Cao Cao Mobility.”

Wang said that stopping new user registration and taking down the app would be a “fatal blow” to DiDi.

According to DiDi’s earnings report, in the Q3 of 2021, the total number of orders on DiDi’s core platform was 2.86 billion, and 2.36 billion orders were for traveling in the mainland. Comparing those numbers to Q2, the total number of orders on DiDi’s core platform dropped by 150 million in Q3. The total number of orders in mainland China in Q3 fell by 210 million.

Wang said that any IPO would require a financial report that shows several years of profitability. If the company is not profitable during these years, and the situation continues to the present day, the pace of listing in Hong Kong may be delayed. DiDi may not be able to meet the listing requirements in Hong Kong, the consequences of this would be very serious.

On May 20, 2021, the Hong Kong stock exchange published a rule that new listings must show a three-year track record of profitability. The rule came into effect on Jan. 1, 2022.

Listing companies must show a profit of not less than HK$20 million ($2.5 million) in the most recent year, and an aggregate profit of HK$30 million ($3.8 million) for each of the previous two years.

DiDi has not yet disclosed its annual financial report. “If it is a full-year loss, the listing will be put on hold. This will be a big deal,” said Wang.

Since the Chinese Communist Party (CCP) announced sanctions against DiDi, its share price plummeted. The company’s IPO was priced at $14 per share, and its market capitalization once briefly approached close to $80 billion. But according to FactSet, DiDi’s share price fell to $5.3 on Dec. 24, 2021, and its market cap dropped to $25.6 billion.

DiDi became a target of the Chinese authorities because of its massive traffic data. In 2017, DiDi launched the Orange View Vehicle Recorder, which has turned more than 10 million DiDi vehicles into street-view real-time capturing every day. In 2015, the DiDi Media Research Institute, in conjunction with Xinhua’s New Media Center, released an article entitled “The Competition of Officials from Ministries Working Overtime on High-Temperature Days.” The article reveals that DiDi had obtained the travel trends of officials, namely those from the Ministry of Public Security, the Ministry of Supervision, the Ministry of Civil Affairs, the Ministry of Justice, and the Ministry of Finance.

On July 16, 2021, seven departments of the CCP jointly launched a “cyber security” review of DiDi.

On Jan. 4, thirteen CCP departments, including the State Cyberspace, the Ministry of Public Security, and the National Security Bureau, jointly issued the Cyber Security Review Measures, which includes new rules to increase oversight on how Chinese tech companies operate their platforms.

Set to be enforced on Feb. 15, these measures are focused on cybersecurity reviews and will require domestic companies with personal information on over 1 million users to undergo a security review to be able to get authorities’ approval to be listed on overseas stock exchanges.

The new Cyber Security Review Measures will replace and void the previous measures issued on April 13, 2020.

Meanwhile, in December 2021, the United States Securities and Exchange Commission announced that Chinese companies listed on U.S. stock exchanges must disclose whether they are owned or controlled by a government entity and provide evidence of audit checks. This requirement could result in a large number of Chinese stocks being removed from U.S. exchanges.

Jenny Li has contributed to The Epoch Times since 2010. She has reported on Chinese politics, economics, human rights issues, and U.S.-China relations. She has extensively interviewed Chinese scholars, economists, lawyers, and rights activists in China and overseas.
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