The Wall Street hype machine is once again cranking at maximum RPM following the Dingdong IPO announcement.

Dingdong, a company that offers fresh produce and grocery deliveries through a mobile app in China, raised $95.7 million when it priced its IPO at $23.50 per share ADS on Monday, June 28. The company gained a market valuation of $5.5 billion.

Dingdong began trading on the New York Stock Exchange the following day and finished at $23.52. In its second post-IPO trading session, the stock closed at $38.30 after reaching an intraday high of $46 per share.

Dingdong had earlier aimed to raise up to $357 million in the IPO but slashed that target by 70% following the lackluster performance of MissFresh (NASDAQ: MF), another Chinese online grocery delivery platform that recently listed its ADSs shares in the United States.

At the time of writing, Dingdong stock is changing hands at $32.57 per share.

Here is what you need to know about the Dingdong IPO.

What is Dingdong?

Dingdong is an on-demand e-commerce company headquartered in Shanghai, China. It was co-founded in 2017 by Jorn van Dijk, Onno Faber, and Leonard van Driel.

The company has an app called Dingdong Fresh, which allows users in that country to buy fresh produce, seafood, meat, and other household supplies.

Dingdong delivers the items to customers within an hour of orders being placed. The company operates in 29 cities in China, including Shanghai, Hangzhou, Beijing and Shenzhen. In the first three months of 2021, it had a monthly average of 6.9 million transacting users and gross merchandise value of 4.3 billion yuan, compared with 2.92 billion yuan in the same period last year.

Dingdong counts Japanese investment giant SoftBank among its investors. Other notable backers include Tiger Global, Sequoia Capital, Aspex, DST Capital, Coatue and General Atlantic.

Why is Wall Street interested in the Dingdong IPO?

Two reasons.

First, Dingdong is a key player in the potentially massive market for Chinese online grocery revenues. Its primary offerings are groceries, consumer products, and 30-minute delivery goal.

In its IPO paperwork with the SEC, Dingdong describes itself as the “fastest-growing on-demand e-commerce company in China” that “directly provides users and households with fresh produce, meat and seafood and other daily necessities through a convenient and excellent shopping experience supported by an extensive self-operated frontline fulfillment grid.”

Dingdong also says in the prospectus that it is “working to modernize China’s traditional agricultural supply chain through standardization and digitalization, empowering upstream farms and suppliers to make their production more efficient and tailored to actual demand.”

In May, the company announced it was collaborating with Shanghai Ocean University to draw up Ding Dong Seafood G.A.P. standards that would guarantee traceability for customers who buy its seafood.

Another reason why U.S. stock traders are excited in Dingdong is because the company offers the most convenient way to own a piece of China’s thriving tech scene.

According to estimates, Chinese internet population is expected to increase up to 1.14 billion by 2025, making it the largest market of online users by far.

With Dingdong on the New York Stock Exchange, it will be easier for Americans to trade shares of the company.

How can you get in on the DingDong IPO?

If you have ever bought a share of stock before, you probably know the process of trading Dingdong shares.

While the company trades on the U.S. stock market as an American depositary share (ADS) rather than a normal share of stock, the shares are available to trade on the New York Stock Exchange.

An ADS refers to shares of a foreign-based company denominated in U.S. dollars that can be traded on a U.S. stock market. These type of shares are issued by American depositary banks, also known as custodian banks, under agreement with the overseas issuing company.

You can own a part of Dingdong by buying Dingdong (NYSE: DDL) stock on its own or in a fund. So, how do you go about it?

Choose an online stock broker

Although some companies offer direct stock purchase plans, Dingdong stock is only offered via a stock exchange. To trade Dingdong stock, you will need set up an account with an online brokerage company, which is a relatively easy and fast process.

However, when choosing a stock brokerage from whom you can trade Dingdong shares, you have to consider factors such as commissions, spreads, payment methods, customer support, and regulations.

Most brokerage firms have no minimum funding requirements, but some with highly regarded trading platforms such as Tradestation require a $2,000 deposit to set up. After opening an account, you can easily fund it electronically from your bank account or other methods.

Decide the number of shares you want to buy

The next thing you need to do is to decide the number of Dingdong shares (position size) that you want to buy.

Although this is a tough call, you don’t feel pressured to purchase a lot of shares right off the start because stocks careen wildly up sometimes. Researching Dingdong and other stocks in its sector can help you determine the number of share.

If you buy 10 shares of Dingdong at $25, and if Dingdong goes to $40, you are making $150 i.e. (10 x $40 = $400 minus 10 x $25 = $250). But it could take months or possibly several years for Dingdong stock to reach a price of $40, and it may never hit that price.

Therefore, you have tied up $250 that could be invested somewhere else waiting for the value of 1 stock to go up and maybe net $150.
Increase that position size to 300 shares at $25, and if Dingdong hits $40, you earn $4,500.

While that would be a sweet profit, your loss would be devastating if the stock dropped to a price of $10.

Choose your order type

Once you’ve decided the amount of Dingdong shares you would like to buy, you will need to choose the type of order you want to use to buy the stock. Some of the most common types of orders include market order, limit order, stop order, and trailing stop order.

Depending on the broker you choose, you use more sophisticated types of orders when you buy and sell stocks. The type of order you pick will play a key role in the price you pay for the stock and when your order is filled.

Execute your trade

After placing your order, your broker will fill your order as you specified in the order. If the broker completes filling the order, the shares will reflect in your trading account. Your broker may also notify you via text message or email when your order is complete.

However, if the broker is not able to complete your order, it may be canceled at the end of the trading day. Some brokerages may also allow clients to select an option to leave the order open for a period of up to 90 days when the initial order is placed.

What is next for Dingdong?

China has experienced a growing demand for fresh grocery and daily necessities delivery in the last few years, particularly during the coronavirus pandemic.

The size of the country’s fresh groceries and daily consumer products retail industry has expanded at a 7.2% compound annual rate from 2016 to 2020, according to market research firm China Insights Consultancy.

The industry is expected to grow by 6.5% annually to $2.4 trillion by 2025.

Relevant data reveals that the Dingdong total income from grocery shopping grew 192.2% to 11,335.8 million yuan ($1.7302 million) in 2020 from surged from 3,880.1 million yuan in the earlier year.

While Dingdong’s revenue have increased substantially, losses in grocery shopping have also swelled.

In 2020, the company posted a net loss of 3,176.9 million yuan ($484.9 million), up from a net loss of 1,873.4 million during the previous year. In the first quarter of 2021, net loss rose 1.39 billion yuan from 245 million yuan in the same period last year.

Although Dingdong Maicai is operating at a loss, the company is gradually closing in on achieving a profitable status. If it can rapidly discover new avenues to grow profit, shareholders may yet see promising market outcomes for this grocery titan.

However, there is no guarantee Dingdong will perform incredibly well and we therefore advise you to do your own research before putting your money in the company