Ant Group Co., commonly known as the proprietor behind Alipay, was set to mark an IPO record if its planned listing for November 5th on Hong Kong and Shanghai exchanges proceeded. The name “Ant”, chosen to represent the fact that the payment-processing-platform will accept even the smallest payments, is certainly not representative of the firm’s latest capital raising arrangement. Ant has lined up an astounding US $34.4 billion in its offering, toppling both Saudi Aramco’s US $29.4 billion deal and Alibaba’s US $25 billion tap on the market. The IPO values Ant at US $313 billion, making it the fourth largest financial company in the world, behind Berkshire Hathaway, Visa and Mastercard.
If you’ve never heard of Alipay, you are certainly not alone. Think of PayPal but for the massive Chinese market and beyond. Its story goes all the way back to 2004, inspired by eBay’s foray into the Chinese market in 2003. Alipay was a fintech service launched by Alibaba, an Amazon-like e-commerce firm founded by now billionaire Jack Ma. While Alipay began as a simple escrow service providing buyers and sellers a trustworthy way to buy and sell, it grew into a much larger and all-encompassing online payment system.
Interestingly, as China became increasingly stringent with their regulations and precluded foreign-owned companies from operating banks, Alipay found itself in need of a structural change. Alipay was owned by Alibaba, who in turn was controlled by Yahoo (American) and Softbank (Japanese), who had over 50% control of the company. To overcome this barrier, Jack Ma and Xie Shihuang, another Alibaba co-founder, repurchased the majority of Alipay’s stock to establish a Chinese-controlled entity, giving birth to Ant Financial. The new corporation is owned 33% by Alibaba with the remainder by Jack Ma (around 50%) and other early investors.
Today Ant has an incredible 1.3 billion users. Ant’s Alipay works synergistically with Alibaba’s e-commerce store, often providing discounted or zero fees for customers who purchase on Alibaba. While Alipay has captured 55% of the market share for mobile payments, it faces fierce competition. Alipay handles this competition by diversifying into five key segments: payments, wealth management, lending, credit scoring and insurance.
Ant is very much unlike the unicorns of recent times who have gone public without any profits under their belt (think Uber, Lyft and WeWork if it didn’t collapse first). In 2019 Ant pocketed US $2.6 billion on US $17.5 billion in revenues. In the first half of 2020 alone Ant beat its entire net profit for 2019 with an astounding US $3.2 billion. In the same period PayPal netted US $1.6 billion. With numbers like this it’s nice to not see the typical case of a unicorn going public without ever having made a penny. On the other hand, a reasonable investor might reasonably ask what Ant Financial could possibly use the additional US $34 billion for given their success thus far. One may find it hard to not fall back to the conclusion that modern-day IPOs are often used as a tool to cash-out investors. Time will tell how Ant continues to grow as a public firm.
UPDATE, NOVEMBER 7TH 2020: Ant’s IPO plans came to an abrupt halt on November 3rd when the Shanghai Stock Exchange hit the brakes. Ant has caused some waves among the highest ranks of the Chinese government. Cofounder Jack Ma made critical statements of China’s current financial regulations a few days ahead of regulators pulling him and other executives in for a meeting regarding Ant’s IPO. The road bump could signal the tension in China to cultivate its capital markets while also not accepting public scrutiny. Or, the halt on Ant’s IPO could be unrelated to Ma’s comments. Time will tell how the fate of Ant’s pursuit of going public in the world’s biggest IPO will proceed.