CaoCao hits rocky post-IPO road amid lingering concerns

The ride-hailing platform’s shares plummeted last week, shaving more than $1 billion from its market value in just days and catching retail investors by surprise

Key Takeaways:

• CaoCao shares lost 37% of their value over six trading days this month, as a post-IPO lockup period for the company’s institutional investors gets set to expire
• The operator of China’s second largest ride-hailing platform scrambled to contain the damage by saying its operations remain on track

By Lau Chi Hang

Just six months after zooming onto the Hong Kong Stock Exchange, shares of ride-hailing platform CaoCao Inc. (2643.HK) are hitting some major speed bumps.

Earlier this month, CEO Gong Xin confidently unveiled a “100 billion yuan from 100 cities in one decade” roadmap at a robotaxi event, discussing his company’s ambitious plans to create a massive fleet of autonomous taxis. The 10-year vision he described included CaoCao’s establishment of five global operation centers offering service in 100 cities, and generating cumulative gross transaction value (GTV) of 100 billion yuan ($14.2 billion).

But investors were apparently unconvinced by such grand visions. Just days later, CaoCao’s stock suddenly collapsed, plunging for six consecutive days from HK$52.30 to HK$32.80 – a 37% nosedive that wiped out more than HK$10 billion ($1.3 billion) in market value.

As the stock tumbled, the company quickly stepped in to try and stem the bloodletting. On Dec. 15, it issued a statement insisting business operations were normal and its fundamentals remained sound. It emphasized its core ride-hailing segment’s robust growth was in line with management expectations, while asserting its medium- to long-term robotaxi strategy was progressing as planned. It also noted steady advancement in its international roadmap as it explored overseas opportunities.

But those reassurances did little to stem the selling tide. That led CaoCao to issue another announcement the next day, disclosing that 19 members of its management team had pledged not to sell their shares that vested under incentive plans before June 24 next year.

Only then did the stock temporarily catch its breath, with shares stabilizing to edge up 0.7% to close at HK$33.04 the day after the announcement.

Uncertain Christmas

Market speculation has swirled since the price collapse, with many focusing on the expiration of a six-month lockup period for cornerstone and pre-IPO investors on Dec. 24. Such lockups are the norm for newly listed companies, designed to stabilize stock prices in their early trading months. It’s also not uncommon to see some downward pressure on stocks as lockup expiration dates approach, as investors worry the market may get flooded with shares from early investors cashing out.

Seven of CaoCao’s pre-IPO institutional investors collectively hold 80.65 million shares, or 14.82% of the company’s total. Those include Xiangcheng Xiangxing, Oceanpine Marvel, ABC Investment, Longqi Xinglu, Dongwu Innovation, Tongxiang Wuzhen Fund and Paradise Silicon-valley Tiansheng.

Six cornerstone investors in the listing hold another 22.64 million shares, or 4.16% of the total, including Mirae Asset Securities, Gotion High-Tech, RoboSense, Mercedes-Benz, Infini Global Master Fund and Eve Asia. Last but not least, major shareholder Li Shufu, founder of domestic auto giant Geely, holds 77% of the company’s shares, which are subject to lockup expirations on Dec. 24 and June 24 next year.

To sum things up, more than 100 million shares — or nearly 19% of the company’s total — are currently subject to institutional investor lockups that will start expiring this week on the day before Christmas. Fear of a post-holiday selling deluge could thus be driving some investors to preemptively dump shares. Concerns also persist that existing institutional or cornerstone investors may have found ways to pre-place shares before the actual lockup expiry dates, potentially leading to the big mid-December declines.

Déjà vu

This month’s sudden crash wasn’t the first for CaoCao, which only went public in June. On Sept. 8, after jubilantly announcing an “Integrated Sky-Ground Mobility” blueprint and a partnership with low-altitude mobility specialist Aerofugia, the stock initially surged 12% to HK$88.70. But those gains were short-lived, and the shares reversed course to ultimately close down 12% on the day. Adding to the disappointment, the big decline occurred the day the stock was added to Hong Kong’s “Stock Connect” program making the company’s shares available to domestic Chinese investors in Shanghai and Shenzhen.

But the selloff didn’t end there, and the stock plunged another 23% the next day. Those declines sent the stock down nearly 40% from its peak, erasing HK$14 billion in market value. Not surprisingly, two instances of such big volatility in less than six months have made investors skittish about putting their money into the stock.

Little comfort from fundamentals

Investor skepticism towards the company certainly comes naturally, as CaoCao’s fundamentals contain few bright spots. It remains deeply unprofitable, with combined losses of 5.2 billion yuan ($739 million) from 2022 to 2024. While its net loss narrowed in the first half of this year, it still bled 495 million yuan.

Weighed down by long-term debt, the company’s total liabilities hit 11.28 billion yuan by end-2024, with its debt ratio standing at a heavy 177%. The company used proceeds from its IPO to reduce its total liabilities to 10.12 billion yuan by the middle of this year. Still, its debt ratio remains elevated at 125%.

One encouraging sign is CaoCao’s revenue, which jumped 54% year-on-year to 9.46 billion yuan in the first half of this year. But the company’s gross margins have remained stubbornly low – long stuck in the single digits – and only inched up 1 percentage point to 8.4% in the first half of this year, yielding a gross profit of just 796 million yuan. Making matters worse, sales and marketing expenses ballooned 62% year-on-year to 840 million yuan during the six-month period, ensuring ongoing operating losses. The losses would have been even steeper without a 39% increase in government subsidies, which totaled 113 million yuan.

Meantime, CaoCao has relatively little to show for its robotaxi dreams, at least in terms of revenue. Investments in that area are likely to be substantial over the next few years, with a payback horizon only in the distant future. That means there’s little incentive to “buy the dip,” even after the recent selloff. And even after the first lockup ends this week, investors may still be wary of the coming expirations next June, adding to the stock’s uncertainty. That may lead long-term investors to steer clear of CaoCao for now.

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