With the Chinese government banning DiDi from all app stores, what does it mean for the company’s future?
DiDi is one of the world’s largest ride-sharing companies. Presently, it has over 493 million annual active users and is heavily backed by Tencent, Alibaba, Apple, and Uber.
Late last month, DiDi raised $4.4 billion in its initial public offering (IPO), making it the largest IPO of a Chinese company since Alibaba. However, two days after its IPO, China announced a probe into the ride-hailing firm. The announcement on July 2 sent shockwaves across the stock market, with DiDi’s shares dropping as much as 10%. .
Two days after the announcement, China’s Internet watchdog, the Cyberspace Administration of China (CAC) banned DiDi from all app stores in the country, stating that it posed a cybersecurity risk for customers.
The Chinese regulators noted: “Didi Chuxing app is found to have severely violated the laws by illegally collecting and using personal information.” It called DiDi to comply with the laws and to ensure its customers’ safety. However, there is still no clarity on the alleged violations and whether more penalties will follow suit.
DiDi later responded, stating that it was thankful to the ”department for its instruction in troubleshooting Didi’s risks.” It also said that it would “rectify and improve risk avoidance and…provide safe and convenient services to our users.”
Financial analyst Ben Cavender, meanwhile, stated that the move signals China trying to discourage companies from listing overseas. Cavender, the principal at China Market Research Group, noted, “I think there’s potentially some subtext here which is basically saying ‘if you’re going to be a big tech company’ and you want to do an IPO, you’d better be doing it on the mainland.”
Cavender further stated that the regulators wanted “to tighten up access to data that’s being collected while at the same time sort of trying to codify a little bit better what kind of data practices are actually OK in China.”
How big is DiDi?
Founded in 2012, DiDi’s main business is ride-sharing. Its app includes many features such as ride-hailing, taxi-hailing, and other mobility services. But, it gained mainstream popularity in China in 2015 due to the merger of Didi Dache and another leading ride-hailing app Kuaidi Dache, forming Didi Kuaidi.
Since then, DiDi has become the number one ride hailing service in China, accounting for 88% of total trips in Q4 of 2020. DiDi’s dominance had also led to Uber selling its China business to DiDi in exchange for a stake in 2016.
Furthermore, in June of 2021, DiDi reported revenue of about 42.2 billion yuan (US$6.5 billion) in the last quarter. Of the total revenue, 39.2 billion yuan (US$6.05 billion) came from China and 800 million yuan (US$123.57 million) came from its international business.
DiDi presently operates in 16 other countries including Australia, Brazil, Mexico, and Russia. One of its strongest international positions is in Latin America, where it has established itself as the second-largest ride-hailing platform in the region. Overall, DiDi’s international business serves 12 percent of its annual active users worldwide and more than 60 million active users.
The impact of the crackdown on DiDi
The current ban on the app is temporary, and will only affect new user sign-ups. Those who have already downloaded the app can continue using it. DiDi, however, has said that the app’s removal could have an “adverse impact on its revenue in China.” Analysts have also said that ban will “hurt its user growth.”
“…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,” warned Shifara Samsudeen, an analyst at LightStream Research.
After U.S. trade restarted post the July 4 break, DiDi’s shares crashed, going down as low as 25%. In the two trading days alone, DiDi’s co-founders Cheng Wei and Jean Liu lost $1.5 billion in wealth.
China’s crackdown on DiDi is not a standalone incident. Recently China has been doubling down on antitrust regulations and going after many big tech companies. In March, Xi Jinping had stated that regulating companies and businesses was essential.
The country’s current crackdown on tech giants began with Alibaba in April this year. Alibaba was fined a record $2.8 billion for violating anti-monopoly rules. Previously, in November 2020, Jack Ma’s Ant Group was ordered to overhaul its operations and was forced to suspend its IPO.
Following CAC’s crackdown on DiDi, the agency also imposed sanctions on truck-hailing firm Full Truck Alliance and job recruitment site Boss Zhipin. Both the companies are listed in the U.S.
These increased crackdowns by Chinese regulators can discourage other companies from opting for overseas listing. Investors, meanwhile, will have to keep a serious tab on regulations and its possible implications, before investing in tech giants.