Company / Analytics

Analytics, 23 October 2020

What investors should know about Ant Group IPO?

Ant Group is a Chinese financial-technology company known for its Alipay super app which handles payments, insurance, investments among others. The company could be headed for the largest initial public offering in history, as it chases a valuation that would rival the biggest payments companies in the world. Alibaba Group has agreed to subscribe to more than a fifth of Ant’s imminent IPO, propping up its part-owned fintech giant’s potentially $35 billion debut slated in the coming weeks. Here are a few things investors should know about the company and the upcoming IPO.

The IPO

Ant, which runs China’s immensely popular Alipay mobile wallet, is reportedly looking to rake in at least $35 billion through an offering that could value the company above $250 billion, according to Bloomberg. That would make Ant’s offering larger than that of Saudi Aramco, which brought in more than $25 billion in the biggest IPO to date. A valuation of $250 billion would mean Ant is worth more than Bank of America ($207 billion) and PayPal Holdings ($213 billion) but less than JPMorgan Chase & Co. ($287 billion), Mastercard Inc. ($336 billion), and Visa Inc. ($427 billion).

The IPO is said to have drawn strategic investors including Singapore’s sovereign wealth fund GIC, Temasek Holdings, and China’s $318 billion National Council for Social Security Fund. But there are concerns that people within the Trump administration are exploring restrictions on the Chinese fintech giant, according to people familiar with the matter.

The company is a sprawling empire

Ant is best known for its mobile-payments offering, but it aims to be a one-stop financial hub that also provides access to wealth management, investing and insurance services. Ant’s platform touches on nearly all aspects of one’s financial life, offering services for everything from payments to credit to insurance to investments within Alipay, which the company calls a “ubiquitous super app.” Ant counts more than a billion annual active users for the Alipay app and 711 million monthly active users.

Ant also offers investment services through the distribution of money-market funds, as well as wealth management and insurance options. Analysts view the portion of the payment of the business as a gateway that brings users into Ant’s more complex offerings.

Ant and Alibaba collaborate on business-related issues. “We, together with Alibaba, are building the infrastructure for commerce and services,” Ant said in its filing. The companies work together by “sharing insights” derived from their platforms, expanding cross-border efforts, and “jointly serving” both consumers and merchants. Ant lists synergies with Alibaba among its business strengths in its filing.

Alibaba Group previously had a profit-sharing arrangement with Ant in which Alibaba received 37.5% of the company’s pretax profits, but Alibaba announced in early 2018 that it would be switching to an equity structure. Currently, Alibaba has a 33% stake in Ant through its subsidiaries, a move that analysts thought would help the Chinese e-commerce giant benefit from a potential Ant IPO down the line.

Ant’s revenue stream

Ant generated RMB 120.6 billion ($17.7 billion) in revenue throughout 2019, up from RMB 85.7 billion a year earlier. The company’s latest annual total consisted of RMB 51.9 billion in digital-payments revenue and RMB 41.9 billion in credit-technology revenue. Ant added RMB 8.9 billion in revenue from insurance technology and RMB 17 billion from investment technology.

The company posted a non-IFRS profit of RMB 24.2 billion for 2019, after recording a loss of RMB 18.3 billion in the prior year. The non-IFRS profit represents profit before accounting for equity-based compensation, royalty and service payments, gains on the disposal of subsidiaries, and some other items.

Ant’s competitors

Ant’s main competition is from Tencent Holdings Ltd. which operates the WePay platform, but, while the companies are close in terms of the amount of consumption spending they help facilitate, Ant leads in other areas of its business.

Ant is about five times bigger on loans under management, about four times bigger on assets under management on the wealth-management side, and about three times more on insurance partners. Though the Tencent competitive threat exists, it isn’t that large today.

The biggest pain point for Alibaba might come from the Chinese government, which has put up roadblocks to Ant’s growth in the past. Ant mentions in its filing that China’s “laws, rules, and regulations are highly complex, and continuously evolving” as it relates to obtaining and maintaining the proper approvals for doing business.

“They could change or be reinterpreted to be burdensome or difficult for us, businesses on our platform, or our partners to comply with,” the company cautioned.

How to invest in the IPO?

While Alibaba shares are listed in the U.S. and Hong Kong, Ant is aiming for a dual listing of its shares in Hong Kong and Shanghai amid tensions between the U.S. and China. The U.S. government is looking to impose stricter restrictions on Chinese companies listed on U.S. exchanges.

Since Ant’s shares are expected to list in Hong Kong and Shanghai, the process of buying those shares isn’t as straightforward for U.S. investors as it would be for stocks listed on U.S. exchanges. Investors should check with their brokerages for specific rules.

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