Didi's IPO will not make investors any money and the business is just as unprofitable as Uber and Lyft, a veteran stock analyst says

• Didi's IPO will not make investors any money, said David Trainer, CEO of investment research firm New Constructs.
• The Chinese ride hailing app jumped as much as 28% during its public debut Wednesday afternoon.
• Trainer, however, says the unprofitable company faces stark competition, regulatory risk, and low margins.

Investors should steer clear of Chinese riding hailing company Didi following its IPO, a veteran stock analyst said.

The company jumped as much as 28% to $18 a share when it began trading on the New York Stock Exchange Wednesday afternoon. It priced an upsized offering of 316.8 million shares at $14, the top of its range.

To New Constructs CEO David Trainer, even the mid-range of Didi's IPO price was too high.

"At a $65 billion valuation, we do not think investors should expect to make any money in Didi's IPO," he said in a recent note.

The veteran equity analyst said the company is worth no more than $37 billion, and Softbank, one of its largest backers, needs the IPO more than investors do.

Trainer's analysis stems from the fact that at a valuation near or above $65 billion, Didi will account for 41% of the world's ride sharing and food delivery market. He doesn't expect the company to hit that given the vast competition for market share. Additionally, Trainer sees Didi's business model as just as unprofitable as Uber and Lyft. Didi has an estimated 90% of market share in China, yet hasn't generated a profit yet, and saw losses accelerate during the pandemic, he added.

"Uber and Lyft have shown investors that ride sharing is not a profitable business because of intense competition, low margins, and a lack of differentiation between services," Trainer said.

He also doesn't see Didi's business model evolving as quickly as some investors forecast.

"While bulls claim that autonomous vehicles will ultimately eliminate driver costs, such a reality is years away at
best," Trainer said. "In the meantime, Didi will continue to offer services below cost and provide driver incentives to attract drivers to the platform, even at the detriment of profitability."

The analyst also warned that Didi is at risk of increased regulation in China. In a filing, the company outlines that its business may be subject to heightened regulatory scrutiny by the Chinese government, Trainer said.

He pointed to a Reuters report from June that the State Administration for Market Regulation (SAMR) has begun an antitrust probe into Didi Global, specifically looking at whether the firm used "competitive practices that squeezed out smaller rivals unfairly." The SAMR also fined Didi in May for violating anti-monopoly rules.