Is it for real or just for the IPO?
According to Barclays, the majority of Ant’s revenue is still from its core payment business – Alipay. By the end of 2017, Alipay had a 53.7% share of the mobile payment market in China. Its main competitor, Tencent's Wechat Pay, has struggled to hit parity. Despite this, is a better performing payment product enough to explain a 50% jump on its already high valuation? Not really. But there are a few other reasons that do support the jump - mainly its shift to becoming a technology provider.
According to Ant Finance, the company is shifting its focus towards becoming a technology company to provide technology services and solutions to banks and other financial institutions. The company board has developed a "BASIC” tech plan: Blockchain, AI, Security, IoT, and Cloud. In 2017, Ant’s technology related services reached around 30% of its total revenue, while the percentage of its sales on financial products, such as online loans, has dropped.
Keeping in line
This transformation may be related to the Chinese government guidance. As regulations on payment and online lending are getting tighter, becoming a tech provider seems like a sensible move for Ant’s future. For its financial business, Ant will seek cooperation with banks and other partners. Recently, Huabei, the consumer finance product of Alipay, opened its API to banks. As a result, banks and other outside financial institutions now get access to all the financial products on Ant Finance’s platform, including Yuebao (wealth management), Jiebei (consumer cash loan), and insurance products, etc. It shows Ant communicates well with the Chinese government.
On top of growth in technology services, Ant finance is expanding its kingdom overseas too. As the company has invested in many local payment companies in different countries, especially around southeast Asia, Ant is aiming to connect all the digital wallets in different countries to provide a global payment infrastructure. It is a risky venture, but if they manage to pull it off, it will tackle many of the painpoints in the global payment industry at the moment. It would be a boost for global MSMEs business by creating easier overseas purchase channels, allowing merchants to sell products overseas, and eventually, putting Ant in every corner of the world. To achieve this global footprint, Ant will need more capital to invest, which explains its IPO plan.
Under these future growth considerations, Barclays can argue the 155 billion valuation is still low under the EV/NOPLAT methods. Ant Financial is expected to list within a year and most likely in HK first, and then main available in the mainland China market through the new CDR (Chinese Deposit Receipt) channel which is newly designed by the Chinese government. Its exiting future plan will attract many investors.
Watch out, the one-eyed blue Ant is coming rapidly. And it may really move the mountains, as Jack Ma described.