Alibaba’s Ant could be bigger than some Wall Street banks — What you need to know about the dual IPO

Ant Group, an affiliate of Alibaba, announced plans for its long-awaited dual listing in Shanghai and Hong Kong on Monday.

The company is known for running Alipay, one of China’s most popular mobile payment systems. But Ant Group has been expanding its reach into everything from wealth management to micro-loans. And beyond that, it has been focusing on selling financial technology products to enterprise customers.

While Ant Group may not be that well known outside of China, its valuation could top that of some of Wall Street’s biggest banks, according to one analyst who spoke to CNBC on Tuesday.

Alipay was launched in 2004. It’s a so-called Quick Response or QR code system of payment. A user presents a digital barcode on their phone which is then scanned by the merchant. Alipay can also be used to pay for items online.

In 2011, Alibaba sold control of Alipay to a group controlled by Jack Ma, a move it said was done to satisfy Chinese regulations. Yahoo, which was Alibaba’s biggest shareholder at the time, said that transaction happened without its knowledge, something the Chinese e-commerce giant denied at the time.

Yahoo, another major shareholder SoftBank and Alibaba eventually came to a deal that same year: Alibaba would be paid at least $2 billion but no more than $6 billion if Alipay went public. Alipay was also required to pay licensing fees and continue serving Taobao, one of Alibaba’s e-commerce platforms.

Ant Financial was created in 2014 to encompass not just Alipay, but Alibaba’s bigger push into financial technology.

Then in 2018, Alibaba bought a 33% stake in Ant Financial. It was able to do so because of a clause in a contract between the two companies from 2014 when Ant was created. Alibaba founder Jack Ma still holds the controlling stake in Ant.

Recently, Ant Financial rebranded as Ant Group.

Ant Group has over 900 million users in China for Alipay. But it offers financial products beyond that, including wealth management, loans to businesses and insurance.

These digital financial services contributed more than 50% of Ant Group’s overall revenues for the fiscal year ended March 31.

But Ant has recently pivoted to focus more on what it calls technology services. That is creating financial technology products that it can sell to enterprise customers for a licensing fee. Eric Jing, former CEO and now current executive chairman of Ant Group, told CNBC in a 2018 interview that technology services would become the company’s main business in the future.

Ant’s international strategy is focused on the several investments it has in e-wallet firms around the world such as India’s PayTM. The company hasn’t looked to launch local versions of Alipay in countries around the world. The only Alipay branded wallet outside of mainland China is in Hong Kong.

Ant Group will carry out a concurrent initial public offering (IPO) on the Shanghai Stock Exchange’s STAR board and the Hong Kong stock exchange. The STAR board is China’s push to create a domestic equivalent of the Nasdaq in the U.S.

But, so far, there are no details on pricing of shares.

Ant Group’s last major fundraising event was in 2018, when investors ploughed $14 billion into the company. At the time, the Wall Street Journal reported, citing sources, that the company was valued at $150 billion.

But its valuation could now be as high as $210 billion, according to David Dai, a senior analyst at Bernstein, who carried out his own calculation at the end of last year.

“(The) earnings power of the company has improved after we wrote that report … so I would expect that valuation to go up from that last round of assessment that we did at the end of last year,” Dai told CNBC’s “Street Signs” on Tuesday.

A valuation of over $200 billion would make Ant larger than some of America’s biggest banks including Goldman Sachs and Wells Fargo.

Alibaba has a 33% equity stake in Ant Group. The e-commerce giant’s Hong Kong-listed shares were up over 5% on the news of Ant’s listing. Investors see the listing as a positive for Alibaba.

“We consider the potential listing of Ant can further unlock its value as a public company,” Jefferies said in a note.

The investment research firm added that based on a $150 billion market capitalization, Ant represents $19 of Alibaba’s American depositary shares (ADS).

Meanwhile, Bernstein’s Dai said Ant Group will be “highly accretive to current share price of Alibaba.”

Alibaba’s U.S.-listed shares closed at $254.81 on Monday. Dai said his current price target on the stock is $290 which could be hit by the end of this year or beginning of 2021.