Alibaba to acquire 33pc stake in Ant Financial, clearing the way for Alipay operator’s IPO
E-commerce giant Alibaba raises annual sales forecast after posting a 56 per cent year-on-year increase in revenue to US$13 billion in the December quarter
Alibaba Group Holding has agreed to acquire a 33 per cent stake in affiliate Ant Financial Services, deepening the e-commerce company’s participation in China’s fast-growing financial technology sector and paving the way for the public listing of the firm that runs payments giant Alipay.
Hangzhou-based Alibaba also raised its annual sales forecast on Thursday after posting strong revenue growth in its fiscal third-quarter ended December 31, boosted by record consumer spending during its Singles’ Day shopping festival in November.
The company reported a 56 per cent year-on-year increase in total revenue to 83 billion yuan (US$13 billion) in the December quarter, surpassing the 79.7 billion yuan consensus estimate in a Bloomberg poll of analysts.
That prompted Alibaba to raise its annual revenue forecast to grow between 55 and 56 per cent, up from its initial 53 per cent projection.
Its net profit rose 36 per cent year-on-year to 23.3 billion yuan, which was its slowest after three quarters when profit growth was at least double. The company's shares fell 5.9 per cent to US$192.22 in New York trading on Thursday.
In a statement, Alibaba said it will buy new shares in Ant Financial in exchange for certain intellectual property rights that it owns related to the operations of its affiliate.
Established in October 2014, Ant Financial’s businesses include Alipay, online bank MYBank, credit scoring service Sesame Credit, lending marketplace Zhao Cai Bao, mass-market investment vehicle Ant Fortune and Yu’e Bao, China’s largest money market fund.
There will be no cash impact to Alibaba following completion of the transaction, the company said.
“Equity ownership allows us to participate in the long-term value creation of Ant Financial as opposed to the quarter-to-quarter fluctuations of a profit share,” Alibaba executive vice-chairman Joseph Tsai Chung-hsin said in a conference call late on Thursday.
Tsai said the strategic benefits to Alibaba included advancing the company’s New Retail strategy with mobile payments; increasing user acquisition and retention through collaboration with the Alipay digital wallet; enhancing the execution of its international expansion; and enabling Alibaba and its shareholders to participate in the future growth of the financial sector.
Alibaba and Ant Financial said they had agreed to certain amendments to their 2014 transaction agreements to facilitate the deal. Investment bank Credit Suisse acted as financial adviser to Alibaba.
Daniel Zhang Yong, the chief executive at Alibaba, said that upon completion of the transaction, the two companies will terminate the current profit-sharing arrangement under which Ant Financial pays royalty and technology service fees in an amount equal to 37.5 per cent of its pre-tax profits to Alibaba.
Ant Financial last year had decided to delay its IPO. The firm was valued at US$60 billion in its last funding round in 2016.
New York-listed Alibaba, which owns the South China Morning Post, said the bulk of its revenue in the December quarter was generated by its core commerce business, which posted a 57 per cent year-on-year growth to 73.2 billion yuan, as its Taobao Marketplace and Tmall e-commerce apps recorded 580 million monthly active mobile users during that period.
During Singles' Day, the world’s largest online shopping festival, the amount of sales transacted on the Alibaba’s e-commerce platform reached US$25.3 billion, nearly four times the combined online sales of Black Friday and Cyber Monday in the United States.
“Additional margin pressure looms from Alibaba’s investments in offline retail and fast growth at its money-losing cloud computing, entertainment and international retail businesses,” wrote Bloomberg Intelligence analyst Ling Vey-Sern in a research note.
Alibaba included logistics affiliate Cainiao in its latest quarterly results, which simultaneously boosted revenue numbers while putting pressure on margins since the logistics firm remained unprofitable.