Stock price flash crash, market value halved, hidden worries behind CAOCAO INC

China's second-largest ride-hailing platform CAOCAO INC recently saw its stock price suddenly collapse, with its market value evaporating by over 10 billion in just a few days, catching retail investors off guard. Key Points: The six-month lock-up period for institutional investors is about to expire. The company is in a hurry to take action to stabilize its stock price. Liu Zhiheng At the beginning of this month, CAOCAO INC (2643.HK) CEO Gong Xin confidently announced the "Ten Years, One Hundred Cities, One Hundred Billion" strategic plan at the Robotaxi (autonomous taxi) strategic upgrade press conference, setting a ten-year vision for Robotaxi; in addition to establishing five major operational centers globally and expanding its business to one hundred cities, it also boasted about achieving a cumulative GTV (Gross Transaction Value) of 100 billion. Despite the ambitious goals, the market did not necessarily agree, and just a few days later, CAOCAO INC's stock price suddenly plummeted, falling for six consecutive days from HKD 52.3 to HKD 32.8, a drop of 37%, resulting in a market value loss of over HKD 10 billion. As the stock price fell like an avalanche, the company became frantic, first issuing a statement on the 15th of this month, emphasizing that the group's business operations were normal, with no adverse changes in fundamentals, and that the ride-hailing business was maintaining steady development in line with management expectations. At the same time, the medium- to long-term strategic direction for Robotaxi was clear and progressing according to plan; the group was also steadily strengthening its international layout and exploring overseas market cooperation opportunities. Although the company had its own narrative, whether the market would accept it was another matter, and this reassurance still failed to stop the stock price decline. CAOCAO INC immediately issued another announcement on the 16th, stating that 19 management members committed not to sell shares under the incentive plan until June 24 of next year. Only then did the company's stock price temporarily stabilize; the day after the announcement, the stock price rebounded slightly by 0.7%, closing at HKD 33.04. Will it be safe after Christmas Eve? Regarding CAOCAO INC's sudden decline, the market has speculated multiple times, with a focus on the expiration of the six-month lock-up period promised by cornerstone investors and pre-listing investors before the company's listing on June 25 of this year, which will expire on December 24 of this year, allowing them to freely sell in the market thereafter. Among the seven institutions that participated in the pre-listing, there are Suzhou Xiangxing Chuanghe, Suzhou Agricultural Bank Investment, Tian Sheng Investment, etc., collectively holding 80.65 million shares, accounting for 14.82% of the equity. Additionally, there are six cornerstone investors, including Future Asset, Guoxuan High-Tech, and Suteng Juchuang (2498.HK), who also hold 22.64 million shares, accounting for 4.16% of the equity. Moreover, major shareholder Li Shufu holds 77% of the equity, with lock-up periods expiring on December 24 and June 24 of next year. In other words, all shares of CAOCAO INC will be unlocked after Christmas Eve this year, and at that time, the shares held by investors will exceed 100 million, accounting for nearly 19% of the company's total shares. With such a large number of shares potentially being sold, investors are concerned about a selling spree after Christmas, making it quite normal to sell first as a precaution. Furthermore, existing institutions or cornerstone investors may also have certain possibilities to pre-sell in the market through various methods, leading to a potential avalanche-like drop in CAOCAO INC's stock price Two Major Crashes in Six Months This sudden crash is not the first. On September 8 of this year, the company had just announced its "integrated transportation" blueprint for shared mobility and excitedly declared a partnership with WoFei ChangKong, which focuses on low-altitude travel, to build a transportation network that integrates Robotaxi ground travel and low-altitude travel. The stock price initially surged 12% to a high of HKD 88.7, but this peak was short-lived, as the stock price quickly reversed and ultimately closed down 12%, despite being the first day the company was included in the Hong Kong Stock Connect. The double joy failed to boost the stock price, which fell another 23% the next day, dropping nearly 40% from its high in just two days, resulting in a market value evaporation of HKD 14 billion. In the six months since its listing, the company has experienced two major crashes, naturally causing investors to steer clear of this stock. Basic Conditions Leave Much to Be Desired In fact, looking at the company's fundamental conditions, its performance still lacks highlights. The company has continued to incur losses, with a cumulative loss of HKD 5.2 billion from 2022 to 2024. Although the loss narrowed in the first half of this year, it still amounted to HKD 495 million. The company is heavily burdened with long-term debt, with total liabilities reaching HKD 11.28 billion by the end of last year, resulting in a debt ratio as high as 177%. This year, due to fundraising from its listing, total liabilities decreased to HKD 10.12 billion, but the debt ratio still stands at 125%. Even though the company's revenue reached HKD 9.46 billion in the first half of this year, a year-on-year increase of 54%, the gross profit margin remains low, consistently in single digits. Although it slightly increased by 1 percentage point year-on-year to 8.4% in the first half, the actual gross profit was only HKD 796 million. However, the company's sales and marketing expenses surged significantly, rising 62% year-on-year to HKD 840 million, leading to continued operational losses. If it weren't for government subsidies increasing by 39% year-on-year to HKD 113 million, the company's losses would have been even more severe