Ant's IPO May Be the World's Biggest Yet

By Luigi Wewege Wednesday, September 9, 2020

Ant Group — an affiliate company of the Chinese Alibaba Group and the highest valued fintech company in the world — is set to list in Hong Kong and Shanghai at once. Analysts believe that this could be the largest initial public offering (IPO) in the world.

The stock market continues to move away from the real economy as the US Federal Reserve decided to keep its interest rates close to zero and accumulate its securities holdings. As a result of such immense liquidity, the stock market has returned to trade at record highs.

Ant Group: The Fintech Giant

The Ant Group secured $17 billion in revenue in 2019, 40% higher than in 2018, while the reported profit was nearly $2.5 billion. During the first half of this year, the group generated $3 billion in net profit, on revenue of $10.5 billion.

This translates to an outstanding net profit margin of about 30%. For comparison, Facebook registered a net profit margin of around 2% after its IPO in 2012. By 2018, that figure increased by only 40%.

The Chinese group aims to reach a market cap of more than $200 billion and will be listed in Shanghai and Hong Kong simultaneously. If everything goes according to plan, Ant will outstrip Goldman Sachs and Wells Fargo.

In 2014, the Chinese group developed an online payment tool called Alipay, which represents the core of the company. Online shopping was still in its developing phase during that period, and there was no real trust between buyers and sellers online.

However, the launch of Alipay was revolutionary for online retail. The system held the payment buyers made upon placing an order and released the money to the retailers only after the buyers said they were happy with the products. In other words, Alipay designed a system that prevented fraud in online shopping.

That’s not all. In February 2015, Alipay initiated a campaign called "You dare to pay, I dare to compensate." The idea was to compensate the buyers in full if they incurred losses due to an online scam.

In that period, Alipay grew at an immense pace and won the hearts of a large group of first consumers. Until 2019, the value of mobile payments in China skyrocketed to $49.7 trillion, and Alipay covered 55.1% of that value.

But it wasn’t the online payments that made Alipay one of the most profitable startup companies, but rather its partnerships with China's biggest commercial banks and Jack Ma's successful relationships with regulators. As a result, the Ant Group became the highest-valued financial technology company in the world.

Last year, over 50% of Ant’s revenue was generated from financial services, including lending, wealth management, and insurance, all of which were available to use through Alipay. Ant decided not to use a business model similar to a traditional bank or insurance company. If it did, it wouldn’t have become as big as it is now.

Dual IPO in China and Hong Kong is not uncommon for Chinese companies. It indicates that Ant having access to foreign financial markets is important for Ant Group. American index funds will still be able to include Ant's H-share, listed in Hong Kong.

Listing of Ant could be viewed as a sort of escalation of China-US disputes. Without doubt, the group will prioritize the nearby international markets, such as Southeast Asia or India, as consumers and businesses in these markets are underbanked, much like China.

But instead of developing the businesses itself, the group will offer the technology and operational powers to other mobile startup companies in those markets. This is called the "coexistence strategy," and it already proved very beneficial for Ant.

Technology behemoth Apple hit $2 trillion in market cap and became the first US company that managed to reach that figure. In such an economic environment, the Ant Group decided to file for its IPO, which also attracted the attention of Goldman Sachs.

The banking giant has reportedly become a part of the Ant Group IPO syndicate of up to $30 billion. Goldman Sachs has a market capitalization of nearly $70 billion.

Summary

Ant Group, an affiliate of Alibaba Group, is set to list in Hong Kong and Shanghai at once. According to some estimates, this could be the world’s largest IPO, worth over $200 billion. The fintech giant managed to generate around $3 billion in profits for the first half of the year alone.

About the Author


Headshot of author Luigi Wewege

Luigi Wewege is the Senior Vice President, and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an Instructor at the FinTech School which provides online training courses on the latest technological and innovation developments within the financial services industry. Luigi is also the published author of: The Digital Banking Revolution.

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