Technology stock

Why RLX Tech Stock Was Down Today

What happened

Shares of RLX Technology (NYSE:RLX) slipped today after the Chinese e-cigarette company released disappointing results in its third quarter earnings report and investors reacted to news that Didi Global would delist from the New York Stock Exchange following a successful initial public offering (IPO) earlier this year. The news jolted investors and sent Chinese stocks tumbling.

As of 11:57 a.m. ET, RLX Technology stock was down 16.3%.

Image source: Getty Images.

So what

RLX reported a 34% drop in revenue to $260.2 million as the Chinese government continues to crack down on vaping. Earnings were also hit, with gross margin dropping from 45.1% to 39.1%, and adjusted earnings per share also dropping from $0.07 to $0.05.

CEO Kate Wang expressed optimism that a new regulatory framework for tobacco products would help the company return to growth, saying, “We believe the industry will enter a new era of development, a an era marked by improved product safety and quality, increased social responsibilities, and improved intellectual property protection. These developments will pave the way for long-term sustainable growth in this sector.”

Elsewhere, news about ridesharing giant Didi once again spooked investors in Chinese equities. Although Didi did not explain the decision, the move appeared to be a response to requests from Chinese regulators, in part due to data security concerns. This is the latest sign of the unraveling of the financial relationship between the United States and China and bodes ill for other Chinese stocks listed in the United States. Didi is considering listing on the Hong Kong Stock Exchange instead.

Now what

RLX did not provide guidance during the quarter, but there are a number of reasons to be wary of the stock at this point, including China’s tobacco regulations, deteriorating investor sentiment in China and weak corporate results. It’s best to avoid the stock until at least some of that smoke clears.

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