Tech stocks have been on a tear this year, and Alibaba Group Holding Ltd (NYSE:BABA), whose stock is up over 40% year-to-date, is no exception. The Chinese tech giant now boasts a market capitalization north of $300 billion.
Alibaba reported its fourth-quarter earnings on May 18, disappointing on earnings but reporting higher-than-expected revenue. Following this, analysts raised price targets for BABA stock: from $132 to $141 at Barclays, and from $138 to $160 at Raymond James.
Although I discussed Alibaba last month, it has been over two months since I covered its payment arm, Ant Financial (which owns Alipay). Ant Financial has been very active this year, investing in the Philippines and South Korea and buying Moneygram International Inc (NASDAQ:MGI), the world’s second-largest money transfer service. Much has been going on in recent months. Last month the Financial Times reported that the Alibaba affiliate’s IPO has been delayed until late 2018 at the earliest.
When Ant Financial goes public, Alibaba gets 37.5% of the proceeds. CLSA analysts value Ant at $75 billion, making this a windfall even for a $300 billion company such as BABA.
What has Ant Financial been up to recently?
Ant Financial Now Has the World’s No. 1 Money Market Fund
Yu’e Bao, Ant Financial’s money market fund, is now the world’s biggest. With over $165 billion in assets under management, it recently overtook the JPMorgan Chase & Co. (NYSE:JPM) U.S. government money market fund.
Although Yu’e Bao is only four years old, it already has served over 325 million Chinese. The fund, whose name literally means “leftover treasure” in Chinese, began as a way for Alipay users to invest their cash balance.
By linking borrowers and lenders, Ant Financial, which wasn’t encumbered by banking regulation, could offer depositors higher rates of return than Chinese state-owned banks.
But there is concern over a credit bubble in China, which could pose problems for the fund, which invests in high-yielding off-balance sheet loans. Recently, the Chinese central bank urged the Alibaba affiliate to reduce the maximum amount people could invest in the fund.
Wrapping Up the Moneygram Deal
In January, Ant Financial tried to buy Moneygram for $880 million. Moneygram ranks second only to The Western Union Company (NYSE:WU), the world’s No. 1 money transfer service.
But a bidding war soon erupted. Euronet Worldwide, Inc. (NASDAQ:EEFT) offered $1 billion for the company. Ant Financial then raised its offer 36% to $1.2 billion.
But then some lawmakers, from Euronet’s home state of Kansas, raised some concerns. They asked whether the Chinese government would allow a U.S.-based company to purchase a Chinese financial services company, and urged stricter scrutiny of the deal.
Sources quoted in the New York Post said that Ant Financial was working very hard to close the deal.
Expanding to the United States
Ant Financial continued its advance into the U.S. market.
In February, it announced a partnership with Citcon to enable payment with Alipay at certain locations.
And in May, Ant signed a deal with First Data Corp (NYSE:FDC). Now four million retailers in the United States will accept payment with Alipay. For comparison, 4.5 million retailers accept payment via Apple Inc.’s (NASDAQ:AAPL) Apple Pay.
Souheil Badran, the president of Alipay North America, said that the market for payment apps in the US is crowded and Alipay plans to focus on Chinese tourists, who spend billions each year.
But Alibaba’s rival Tencent Holdings Ltd (OTCMKTS:TCEHY), China’s biggest tech company, is making similar moves. Tencent owns WeChat, the messaging app with a whopping 938 million daily active users, mostly in China. WeChat Pay is gaining ground in China, quadrupling its market share over the past few years.
In the fourth quarter of 2016, Alipay’s market share stood at 54%, versus 37% for WeChat Pay.
But the Chinese market for mobile payments is growing at a fast rate, more than tripling last year.
As of writing, Lucas Hahn did not hold a position in any of the aforementioned securities.
