DIDI stock will no longer see $ 14, but speculators could still benefit

It all started with so much promise. DiDi Global (NYSE:I HAVE) Stock started at $ 14 per share after the company went public (IPO) in June. It should be the so-called Over (NYSE:OVER) from China.

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Like Uber, DiDi is primarily a ride-sharing platform. DiDi has carved out a niche since Uber and other western competitors failed to establish themselves in China.

But that’s not all. DiDi also provides grocery delivery, freight services, electric vehicle (EV) leasing services, etc.

The company has not yet reached profitability but has shown rapid sales growth. Until it got into trouble with Chinese regulators, it looked like DiDi had a good chance of being a long-term winner. Everything has gone wrong since then. The final twist could be the worst yet; DIDI shares are ousted from the New York Stock Exchange.

Leaving New York: What’s Next?

Earlier this month, DiDi announced that it would begin delisting its shares from the New York Stock Exchange. DiDi stated that this will start “immediately” although there weren’t too many hard details as to the exact time of things.

DiDi said that the existing DIDI shares will remain freely tradable and will switch to another international exchange. It seems that after leaving New York, DiDi will be back in Hong Kong.

Existing shareholders should be able to transfer their stake in the Hong Kong stock market or wherever the shares ultimately end up. That is, some brokers, such as Robin Hood (NASDAQ:HOOD) have limited support for stocks that are not listed on a major US stock exchange.

A significant number of individual investors may not be able to maintain their stake in DiDi if the stock is newly listed in Hong Kong.

In theory, if the stock were removed from the stock market, it would likely lose value in the short term. A significant portion of the shareholder base would likely choose to sell DIDI stock in New York while they still could. It will take time for a new loyal group of investors to develop to support the stock with its Hong Kong listing.

What if it gets privatized?

I’ve seen bullish arguments suggesting that DIDI stock would be worth $ 14 in a potential privatization scenario. I do not agree with this view.

The $ 14 mark comes from the company’s initial public offering, which came off at $ 14 per share. Since DiDi can’t stay in the US markets in a fair and just world, it would refund the original $ 14 per share to make up for the IPO.

However, this seems unlikely. For one thing, a large chunk of the stock has already traded hands and people have made or lost money accordingly; There’s no way I can go back from going public even if people wanted to.

On the other hand, the value of DiDi has probably fallen significantly since the IPO. China’s supervisory authorities took action against DiDi in particular and removed its app from the stores. This was certainly a negative move compared to what people knew at the time of the $ 14 IPO.

Chinese tech stocks like Alibaba (NYSE:BABA) were in free fall. It would be hard to argue that Didi is still worth the same price as it was back when other publicly traded Chinese tech companies have plummeted.

Finally, I doubt insiders would be that generous. DIDI stock is currently trading below $ 7 per share. Most shareholders would probably be happy for $ 9 or $ 10, given the current state of DiDi in particular, and tech stocks in general.

A take-private scenario is quite likely and would have advantages for shareholders, but don’t anchor to the IPO price. At this point, any potential deal is likely to be closed at a significantly lower price.

DIDI share judgment

Any potential trade in DIDI stock is pure speculation, let’s get that straight. The ultimate fate of the company’s stock – or at least its publicly traded shares in New York – rests in the hands of corporate insiders and regulators.

They have several options to choose from, and external forces can force them to produce a certain result.

As a trader, every game here is simply an educated dice test of how insiders and regulators deal with this chaos. If they choose to quickly privatize the company, shareholders should receive a reasonable premium. Estimating about 25 or 30%, don’t expect to get the $ 14 / share IPO back, but it would probably be a decent profit.

If the company leaves North America and moves to Hong Kong listing, it could go both ways. The shareholders continue to have an economic interest in the future of DiDi’s business.

However, given the lower liquidity – especially the fact that they cannot trade the stock on many U.S. brokerages – shareholders may not want to stick with Didi while they head down this route.

There is also the risk that the DIDI share will be exposed to expiry. Not yet delisted, but still under the cloud of future regulatory measures. In the short term, DiDi’s shares could continue to decline until a clearer decision is made about the company’s fortunes. With that in mind, there are better bets on a rebound in the Chinese tech sector.

At the time of publication, Ian Bezek held positions (neither directly nor indirectly) in the securities referred to in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s posting guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a junior analyst for Kerrisdale Capital, a large hedge fund based in New York City. You can reach him on Twitter at @irbezek.

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