Initial Public Offerings (IPOs) remain as popular as ever. With major indexes like the Nasdaq and the S&P 500 hitting record highs once again, it seems that market enthusiasm has returned somewhat to pre-pandemic highs. Despite fears of inflation and other worries, investors are becoming bullish once again, and it should come as no surprise that IPOs are once again grabbing a lot of attention. One IPO that’s about to go public on Wednesday morning is Didi Global, a Chinese ride-sharing giant that’s been called the “Uber of China.” Here’s what to expect from this hot IPO stock when it goes public.
According to analysts covering the IPO, Didi Global is expected to start trading on American stock exchanges with an initial share price of $14. In total, that would give the company a valuation near $67 billion, if not more. Given that most hotly anticipated IPOs surge in their first couple days of trading, Didi could easily exceed a $100 billion market cap. Most traders are already keeping an eye out for the stock once it starts trading.
As expected, analysts are already initiating rating coverage on the company, even before it’s started trading. Atlantic Equities analyst Ziao Ai gave the company a buy rating with a target price of $25, which would correspond with a $120 billion valuation. In a note to clients, the analyst wrote that the Chinese ride-sharing market remains incredibly promising, and even if Didi doesn’t beat out domestic competitors like Uber, its Chinese dominance will be enough to justify its pricy valuation.
“Underpinned by the ongoing expansion of the Chinese urban population and disposable incomes, we see attractive growth potential as Chinese ride hailing is only as penetrated as in the U.S., despite being a structurally more attractive market due to the greater population density and less prevalent car ownership,” wrote Ai. She added that the company had the “best-in-class margins” compared to most other ride-sharing platforms out there.
During the company’s IPO roadshow, Didi’s management said that around 70% of China’s population would be living in large urban areas by 2030. Given the congestion, few will own cars in these areas. Instead, ride-sharing will be cheaper and more effective for these high-traffic cities. Given China’s one-billion-plus population, having over 700 million or so people packed into cities makes American ride-sharing demand seem insignificant in comparison.
While ride-sharing stocks like Uber and Lyft were some of the top IPOs of their respective years, the enthusiasm for ride-sharing companies has died down somewhat. Part of that is due to the COVID-19 pandemic, in which fewer people were willing to go inside another person’s car. Other issues, however, include the fact that most ride-sharing companies were reporting massive losses for most of their histories.
Despite this, growth stocks seem to be back in favor, at least for now, and new ride-sharing IPOs like Didi are expected to be incredibly popular among short-term traders. That’s also not to mention the emergence of new “meme stock” traders, who are looking for the next stock to ride to the moon. Keep your eyes peeled for this stock as it starts trading Wednesday morning.
