The DiDi stock price crashed on Tuesday as the ongoing crackdown of technology stocks continued. The shares declined by more than 20%, bringing its total market capitalization to more than $57 billion. Other Chinese technology companies like Alibaba, Full Truck Alliance, and Kanzhun declined by more than 2%, 19%, and 10%, respectively.
China crackdown on technology
China has emerged as a leading technology powerhouse in the past few years. This has seen some of its companies become leading players in multiple sectors.
For example, Alibaba is one of the biggest e-commerce and cloud computing companies in the world. Tencent is the biggest gaming conglomerate while Huawei is a leading player in telecommunication.
Recently, however, China has started flexing its muscles on the sector. For example, it recently ordered Ant Group to suspend its dual listing in Hong Kong and Shanghai. At the time, the company was valued at more than $300 billion. Today, it has a market value of less than $50 billion. Alibaba’s valuation has dropped by more than $200 billion.
The biggest topic this week is the country’s crackdown of DiDi. For starters, DiDi is a leading technology company that offers similar services like Uber and Lyft. It has more than 600 million customers mostly in China. It also has operations in countries like Russia, Peru, and Argentina. The firm also offers services like designated driving, bikes & e-bikes, and delivery services.
China investigation on DiDi
The DiDi stock price has crashed today after China ordered the company to stop accepting new customers. It also directed companies like Google and Apple to remove the application from their stores. This happened as the cybersecurity regulator said that it was carrying out a data security review. According to the Wall Street Journal, the regulator wants to find out the data collected by the companies and whether it was stored abroad. In a note, a Wedbush analyst said:
“While Chinese regulators are pointing to Didi’s collection of user data as the impetus for their actions, with the move coming right after its US IPO, there is speculation that China targeting Didi because of its decision to list outside of China.”
Most importantly, China wants to reduce the number of domestic companies that are listing abroad. After the issue became a key talking point in the United States, some politicians want the country to delist companies that don’t follow American laws.
DiDi is also facing an antitrust probe by the China Administration for Market Regulation (SAMR). The investigation is on the company’s pricing strategy and whether it was squeezing out its competitors.
What next for the DiDi stock?
The DiDi stock price has declined from an all-time high of more than $18 to $11 after the new Chinese review. This decline might incentivise many investors to buy the dip. While this dip will create a good opportunity to buy, we believe that now is not the time to buy. For one, we suspect that the company will continue facing significant negative headlines in the near term.
Still, in the long-term, we believe that the stock will rebound. For one, other ride-hailing companies like Uber have rebounded after falling sharply initially. Also, we believe that China will not want to kill these companies. Instead, it will likely add more rules and possibly issue a fine.