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By Arghyadeep Dutta, 1:00 pm ET:
Chinese ride-hailing service provider DiDi Global Inc’s(DIDIY) shares dropped about 25% in the pre-market trade at New York on Tuesday after China ordered the company to take down its app over data violation days after its $4.4 billion listing on the U.S. market.
On Sunday, the Cyberspace Administration of China (CAC) ordered smartphone app store operators in the country to remove DiDi’s app from the store, which let the customers book a cab service, after the regulators found that the company had illegally collected users’ personal data.
Other Chinese firms listed in the U.S. exchanges, including Full Truck Alliance and Kanzhun Ltd, opened low on Tuesday after the CAC announced cybersecurity investigations into their affiliated companies the previous day.
The U.S. market was closed on Monday for the July 4 holiday.
In pre-market trade on Tuesday, DiDi’s shares dropped to $11.59, more than 30% lower than its debut price of $16.65 on June 30.
At press time, the stock was down nearly 21% to $12.29 a share, compared to Friday’s closing. The crash in share price has led the company to shed about $19 billion in market capitalization.
“In terms of fundamental impact that (share price fall) is a bit harsh, in our view,” said Sumeet Singh, Aequitas Research director who publishes on Smartkarma, told Reuters.
“But with some news sources saying that DiDi knew months in advance that a crackdown was coming, some people will start to have their doubts on governance of the company as well.”
On Monday, the Wall Street Journal reported that weeks before the U.S. debut, Chinese regulators suggested the company to delay its IPO and advised to conduct a thorough self-examination of its network security, citing people with knowledge of the matter.
“And if the crackdown was indeed planned months in advance, that would imply that it’s not going away soon, which might explain the large share price correction,” Singh added.
DiDi earlier told Reuters that the app’s ban would harm its revenue in China despite the existing customers can still use the service and had no knowledge of the investigation before the IPO.
“Didi’s app ban will hurt its user growth, and at the same time, the existing users of DiDi’s app will also have a certain level of reservation over using the company’s app due to fear of compromising their personal data,” Shifara Samsudeen, LightStream Research analyst who also writes on Smartkarma, said.
“So, it is obvious that DiDi’s top line will be affected.”
Shares of Full Truck Alliance went down 21% to all-time lowest of $14.89, while Kanzhun dipped about 16%, with price lowered to $30.51, least since debut.
CAC on Sunday said they are probing against the U.S.-listed Kanzhun and subsidiaries of Full Truck Alliance to “prevent national data security risks” as the crackdown on the country’s technology sector continues.
Yunmanman and Huochebang are the subsidiaries of the New York-listed Chinese road logistics platform Full Truck Alliance, which regulators named, while Kanzhun is the owner of the Chinese online recruitment platform Boss Zhipin backed by the tech giant Tencent and listed on the Nasdaq.
“I think the recent Chinese regulatory actions against Chinese companies that have just listed in the U.S. may raise a few eyebrows in Washington,” David Chao, global market strategist at Invesco, told the Reuters Global Markets Forum.
“I don’t think there will be a boycott of Chinese companies by U.S. investors - many recently listed Chinese companies in the U.S. have done very well.”
DiDi shares were sold at $14 each in the IPO, which was the largest debut of a Chinese firm in the U.S. since Alibaba raised $25 billion in 2014. The company had been valued at about $75 billion as of Friday.
“I think some investors may have taken comfort that going ahead with the listing was under the blessing of the authorities when now we know it clearly wasn’t,” Dave Wang, portfolio manager at Singapore’s Nuvest Capital, told Reuters.
Shares of all the Chinese firms have dropped on Tuesday, including all the Chinese giants like Alibaba Group Holding Ltd, Pinduoduo Inc and Baidu Inc.
“In light of some of the recent news, investors need to be looking at not just valuations of the company based on global opportunities, but keeping in the back of their mind that policies could go into effect and how will that affect companies here in the (United States),” Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox told Reuters.
Picture Credit: CNBC