Is Didi Global stock fairly justified at $70B?

Chinese ride-hailing company Didi Global Inc. (NYSE: DIDI) went public in the New York Stock exchange on Wednesday with a valuation of $70 billion. While the company holds a dominating market share backed by nearly 500 million active riders, concern remains among investors if it is fairly valued.

Didi has scale ‘like no one else’

CNBC’s John Fortt said on “Squawk Box” that Didi is in a better position versus a company like Uber Technologies (NYSE: UBER) given its massive user metrics and ongoing exposure and investments in sectors where Uber once tried to dominate in namely autonomous driving. But Didi’s advantages extend beyond this one segment. He said:

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They built electric vehicles. They’ve got bikes and e-bikes maintenance, food delivery, financial services group buying it’s been clear from early on that local delivery is a scale game and Didi has scale like no one else. And that’s going to matter as Didi fights for ride hailing share and builds new businesses outside China.”

As a result, Didi is in a better position for the next stage of the digital economy, which entails blending online and physical transactions, an aspect in which Didi wins.

Didi needs to scale its operations outside china

On the flip side, Didi is valued below Uber who is testing the $100 billion valuation milestone. So, put in perspective one can make the point its $70 billion valuation is “not so impressive” given its dominance in China. Although China is a massive market, it is also highlighted by low revenue per ride. In addition, Didi is far from a “worldwide delivery play” so this justifies a discount valuation versus its American peer.

Perhaps the future of the company’s valuation lies in its ability to successfully invest and build out all of its core businesses, especially outside of China. He said:

Didi has got this big portfolio of businesses in ride hailing, autonomous EVs food delivery in Mexico. Sure. But it’s also got to invest in them to grow them. And that hasn’t been hard at a time when interest rates are low and capital is cheap, but things are changing.