Ant Group, an Alibaba subsidiary, announced plans for its long-awaited dual listing in Shanghai and Hong Kong on Monday.
The company is known for running Alipay, one of China’s most popular mobile payment systems. But Ant Group has been expanding its reach in everything from wealth management to microcredit. And beyond that, he has focused on selling financial technology products to business customers.
While Ant Group may not be as well known outside of China, its valuation may outpace that of some of Wall Street’s largest banks, according to an analyst who spoke to CNBC on Tuesday.
Brief history
Alipay was launched in 2004. It is a payment system called Quick Response or QR code. A user presents a digital barcode on their phone which is then scanned by the merchant. Alipay can also be used to pay for items online.
In 2011, Alibaba sold control of Alipay to a group controlled by Jack Ma, a move it said was done to satisfy Chinese regulations. Yahoo, which was Alibaba’s largest shareholder at the time, said the transaction was carried out without its knowledge, something the Chinese e-commerce giant denied at the time.
Yahoo, another major shareholder SoftBank, and Alibaba finally struck a deal that same year: Alibaba would receive at least $ 2 billion but not more than $ 6 billion if Alipay went public. Alipay was also required to pay the license fees and continue to serve Taobao, one of Alibaba’s e-commerce platforms.
Ant Financial was created in 2014 to encompass not only Alipay, but also Alibaba’s biggest push towards financial technology.
Then in 2018 Alibaba bought a 33% stake in Ant Financial. It was able to do so due to a clause in a contract between the two companies since 2014 when Ant was created. Alibaba founder Jack Ma still has the controlling stake in Ant.
Ant Financial was recently renamed the Ant Group.
The business
Ant Group has more than 900 million users in China for Alipay. But it offers financial products beyond that, including wealth management, business loans and insurance.
An employee scans a Quick Response Code (QR) that is displayed on the Ant Group Alipay app. Ant Group is preparing for a double initial public offering in Shanghai and Hong Kong.
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These digital financial services contributed more than 50% of Ant Group’s total revenue for the fiscal year ended March 31.
But Ant has recently turned to focus more on what he calls tech services. That is creating financial technology products that you can sell to business customers for a license fee. Eric Jing, a former CEO and now current CEO of Ant Group, told CNBC in a 2018 interview that technology services would become the company’s core business going forward.
Ant’s international strategy focuses on the various investments it has in electronic wallet companies around the world, such as India’s PayTM. The company has not sought to release local versions of Alipay in countries around the world. The only Alipay brand wallet outside of mainland China is in Hong Kong.
IPO details
Ant Group will conduct a concurrent Initial Public Offering (IPO) on the STAR directory of the Shanghai Stock Exchange and on the Hong Kong Stock Exchange. The STAR board is China’s push to create an internal equivalent of Nasdaq in the US.
But, so far, there are no details on the share price.
Ant Group’s last major fundraising event was in 2018, when investors invested $ 14 billion in the company. At the time, the Wall Street Journal reported, citing sources, that the company was valued at $ 150 billion.
But his valuation could now be as high as $ 210 billion, according to David Dai, a senior analyst at Bernstein, who made his own calculation late last year.
“(The) profit power of the company has improved after we wrote that report … so I would expect that assessment to increase from that last round of assessment we did late last year,” Dai told “Street Signs” from CNBC. on Tuesday.
A valuation of more than $ 200 billion would make Ant bigger than some of the largest banks in the United States, including Goldman Sachs and Wells Fargo.
What does this mean for Alibaba?
Alibaba has a 33% equity interest in Ant Group. The e-commerce giant’s publicly traded shares rose more than 5% on the Ant listing news. Investors see the listing as a positive for Alibaba.
“We believe that the possible inclusion of Ant may further unlock its value as a public company,” Jefferies said in a note.
The investment research firm added that, based on a market capitalization of $ 150 billion, Ant represents $ 19 of Alibaba’s US depository shares (ADS).
Meanwhile, Bernstein’s Dai said the Ant Group will be “highly creditable at Alibaba’s current share price.”
US-listed Alibaba shares closed Monday at $ 254.81. Dai said his current price target on the stock is $ 290, which could be reached later this year or early 2021.
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