Last week, Chinese ride-hailing company Didi Global Inc. (ticker: DIDI) made its debut on the New York Stock Exchange (NYSE), and it raised $4.4 billion on its Initial Public Offering (IPO), making it the second-largest IPO in the U.S.by a Chinese company after e-commerce giant Alibaba in 2014.
According to its filing with the Securities and Exchange Committee (SEC) before going public, Didi listed several risk factors for its business. One of them is the continued rigorous antitrust crackdown on tech companies, including Didi, by the Chinese government.
The Chinese government had raised concerns about Didi’s drivers’ well-being and human resource treatment in the past. Regulators are looking out for issues such as; driver income, pricing, and fairness to both the riders and drivers. Didi reiterated that it treats its drivers as private contractors, just like other ride-hailing companies such as Uber and Lyft and that it had put in place several safety measures for the riders.
Well, it looks like the Chinese government is not yet satisfied with Didi’s business practices, and on Sunday, July 4, 2021, it ordered the company to remove its app from online stores while the company conforms its customer data handling to the regulator’s guidelines.
The reason? According to the Cyberspace Administration of China (CAC), an investigation into how Didi managed customer data found that the company allegedly seriously violated how it handled riders’ personal information. Therefore, the regulator wants the company to fix up its issues, but as it does so, it should not accept new customers to download the app.
“After checks and verification, the Didi Chuxing app was found to be in serious violation of regulations in its collection and use of personal information,” the Cyberspace Administration of China announced as it issued its directives to the Didi to rectify problems.
Didi issued a statement where it replied to the directives and stated its willingness to abide by the regulator’s request while trying to ensure the strict regulations put in place by CAC don’t hamper its business operations.
“The company will strive to rectify any problems, improve its risk prevention awareness and technological capabilities, protect users’ privacy and data security, and continue to provide secure and convenient services to its users,” Didi said in a statement as quoted by BBC.
Didi’s shares fell 5.3% after the CAC announced an investigation into the company on Friday, July 2, 2021, only days after its NYSE debut that took its valuation to $73 billion. The company said that the directive does not affect existing users (those that have been using the app before the investigations were launched) and that they can go on to use the service as before.
In its filing to SEC, Didi said that it has hundreds of millions of riders operating in 16 countries and over 4,000 cities around the globe. Its platform that expanded to food delivery and other services arranges over 20 million rides every day.
CAC said that Didi had been illegally collecting personal data from users of its services, and the regulator seems to have a point. It is understood that the company collects real-time user data every day, and it uses some of the collected data for its operations, like autonomous driving technologies and analysing traffic on the roads. The company has raised concerns over the effects of the new directive on its business operations, saying it will adversely impact its revenues.
CAC’s directive comes at a time when the Chinese government strives to hover a controlling hand over its tech giants to protect the public interest and national security. Some companies have been directed to collect less private information from their users and handle the information they collect more carefully.
Companies that defy these directives or don’t follow them to the satisfaction of CAC have been heavily fined, and an example of these is the world’s biggest e-commerce giant, Alibaba Group, which was fined $2.8 billion in April this year for allegedly violating anti-monopoly rules.
Didi Chuxing Technology Co., formerly named Didi Dache, was founded by Will Wei Cheng in June 2012, and it has its headquarters in Beijing, China. According to the company’s data, it has over 550 million users. Before this, Cheng, the current Chief Executive Officer (CEO), had earlier worked at Alibaba Group’s sales and Alipay divisions for over eight years.
The company’s business model is similar to other big ride-hailing services companies Uber and Lyft. However, Didi has expanded into other options like private car-hailing, social ride-sharing, and bike-sharing. Didi also operates an on-demand delivery service, automobile services like selling, financing, leasing, fleet operation, and vehicle maintenance.
Didi’s Q1 FY2021 report revealed that the company had built the largest charging network for EVs in China. This network takes more than 30% market share of the total public charging volume in China. The company itself has over 1 million EVs and hybrids on its platform, which means that 40% of all the miles travelled by EVs in China are on its platform. It should be noted that Didi also designed its own EV called the D1.
Didi went public last week on Wednesday, June 30, 2021, selling each share at $14, rose to $16.64 on Thursday, July 1, 2021, and it is currently trading at $15.53, after being affected by the Chinese government directive to have its app removed from Chinese stores. The company is the second biggest ride-hailing company globally, with a market capitalisation of $74.46 billion, only behind Uber.
Notable owners of Didi’s stock are Japanese multinational conglomerate holding company SoftBank Group which owns 21.5% of Didi stock, its competitor Uber which owns 12.8%, and Chinese tech giant Tencent Holdings Ltd which owns 6.8% of Didi.
After listing successfully on the NYSE, S&P Dow Jones Indices announced that Didi would be added to the S&P Dow Jones’ global equity indexes before the start of the morning trading session on Monday, July 12, 2021.