China’s Latest Blockbuster Tech IPO Could Give Investors a Bumpy Ride

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China’s ride-hailing company Didi Chuxing is heading for the stock market. It might not be cheap to get a ride.

On Thursday, the Chinese company filed to list in the U.S. in a deal that could give the company a valuation above $70 billion, making it one of the world’s largest initial public offerings this year. The deal may help to shift the U.S. IPO market back into a higher gear; after a strong start of the year it has slowed lately. Technology stock valuations have likewise retreated from their peaks. Chinese tech stocks have been hit particularly hard amid investor concerns about a regulatory crackdown from Beijing.

Didi’s star-studded lineup of existing investors could report big gains. SoftBank , which has already enjoyed windfalls from the buoyant IPO market, has a 21.5% stake. Uber sold its China business to Didi in 2016 in return for a stake, currently at 12.8%.

Similar to Uber and Lyft , Didi has been losing money in the past three years, though last year’s results were also affected by the pandemic. It posted a profit in the first quarter, but that included $1.9 billion of investment income, without which Didi would still be in the red.

A $70 billion valuation would put Didi on about 3.2 times last year’s revenue. That might seem cheap compared with Uber and Lyft, which trade at around 8 to 9 times. But Didi’s ride-hailing business in China, which makes up nearly all of its sales, includes drivers’ earnings in its revenue, while Uber and Lyft only include their cut. Accounting for the difference, it is reasonable that Didi should trade at a much lower revenue multiple. This is still an IPO priced for growth.

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