Didi Removal From App Stores Could Spell Trouble for SoftBank

    • Didi, which only gained 1% on its IPO day last week, is slowly turning into a nightmare for investors in the company.
    • Chinese authorities say that Didi has violated cyber security laws, and shared those with other companies.
    • As a result Didi’s app has been removed from chinese app stores, and the future of the company is now uncertain.
    • Some of the companies invested in Didi, could see their share prices decline as the market adjusts for the decline.

    On Friday it was announced that Didi was under investigation by the Chinese cyber security authorities. Didi, which had just raised $4.4B on its IPO two days prior, saw its shares decline following the news. Today we just learned that according to Chinese authorities, Didi violated personal information laws. Didi decided to remove its app from Chinese app stores following the news, as it makes the necessary changes to comply with Chinese law. However current users can still use the app, and its services. 

    The stock should continue to decline once the market opens, and leaves investors in the company completely horrified. Some of the companies invested in Didi, like Softbank (OTC:SFTBY), Tencent (OTC:TCEHY), and Uber (NYSE:UBER), could also see significant declines. As impairments on their investments are expected to be meaningful. For growth investors, this could be an opportunity to add some shares of these well known names. However at this time, Didi seems uninvestable due to the lack of sufficient information to assess its future prospects at this point. 

    Strange timing 

    Given that the IPO was just last week, and the news that Didi was being investigated came in two days prior to taking down the app. It seems to be too big of a coincidence. The question that is looming on investor’s minds right now is, was the company not aware that it was being investigated? This seems to be an important detail, as if it was the case, the company failed to disclose that publicly. Drawing investors to the hottest IPO since Alibaba, that will now see a significant decline in the value of their investments.

    There is also another regulatory concern. Did the SEC do the necessary due diligence to make sure Didi was disclosing all the relevant information before the IPO. Was Didi intentionally hiding the fact that it knew about the investigation?

    Some of these questions do not have easy answers but they seem to be pertinent. 

    Softbank shares will also decline

    Softbank is one of Didi’s largest shareholders, and was certainly looking forward to this hot IPO. It owns ~21.5% stake in Didi, and should see the value of that investment decline significantly. Things didn’t go as planned and Softbank shares are also expected to turn red once the market opens. As investors adjust its valuation to the potential impairments of the Didi investment.

    This is also another Vision Fund failure. Following the WeWork debacle, Didi could end up becoming a big loss for the Vision Fund and Softbank shareholders. It is too soon to say what will happen, but the picture does not look so good. Although some investments do not go as planned, it seems by now a recurring theme, among Vision Fund investments to lose value.

    Final take on Didi

    First it was WeWork, now it is Didi. Softbank’s Vision Fund seems to be increasingly losing money, and certainly investors are not happy about it. Nonetheless the vast portfolio the company still owns is valuable. Although it is not entirely certain how the stock will behave, it seems fair to expect a decline.

    We expect Didi to plunge over 10% on Tuesday morning following the news and its removal from app stores. Softbank is also expected to decline. Uber shares should sell off, as it owns a ~12.8% stake. Tencent is also an early investor in Didi, and out of the three companies should be the one to decline the least. This is because it has a stake of just ~6.8%. Prosus (OTC:PROSY) could possibly decline slightly. Investors looking at these growth stocks, could be able to pick up some shares at a discount.

    Image Source: Yahoo

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