The Ant Group IPO could be history’s biggest offering. But U.S. investors will not have access to the deal. The offering will instead be on the Shanghai and Hong Kong exchanges. Given the rising tensions between the U.S. and China, a listing on the Nasdaq Exchange or New York Stock Exchange would just be too risky.
Ant Group operates the extremely popular Alipay app. At the core of it is a massive payments business. But the app has other offerings like insurance, money market funds, mutual funds, consumer and business lending, and wealth management. Yes, in a relatively short period of time, Ant Group has become a financial powerhouse.
There are several key strategic advantages for the company. First of all, Ant Group benefits from the inherent network effects of its user base. This makes it incredibly difficult for other companies to take away customers. Next, Ant Group has huge amounts of valuable data. This makes it possible to use sophisticated approaches like artificial intelligence.
And finally, the Chinese market is large and getting wealthier. For example, the middle class is expected to reach 600 million by 2022.
Background on Ant Group
One of the co-founders of the company is Jack Ma, who also created Alibaba (NYSE:BABA). While Ma’s vision was a big factor for the company’s success, the synergies with Alibaba were critical as well. Keep in mind that Ant Group was spun off in 2011. However, Alibaba still owns 33% of the company.
The growth for Ant Group has certainly been strong. For the first half of this year, revenues jumped by 38% to $10.5 billion. Ant Group has also remained profitable. This has been helped by the capital-light business model. For the first half of this year, the earnings came to $3 billion.
No doubt, the scale of Alipay is enormous. Note that there are over 1 billion annual active annual users.
Yet there are risks to the Ant Group IPO. First of all, there is Tencent (OTCMKTS:TCEHY), which has its own payments app. It is part of the WeChat social network, which is the largest in China.
Perhaps the biggest threat is the potential for more regulations from the Chinese government. Note that there are growing concerns that Ant Group’s power is getting too strong — maybe even at the levels that warrant antitrust scrutiny. There are also worries that the company is taking on too much risk with the extension of credit.
Bottom Line on the Ant Group IPO
The private investing markets have been bubbly in China for quite some time. In other words, Ant Group has had little trouble raising money to finance its growth. The latest round came in 2018 when the company raised $14 billion at a $150 billion valuation. Overall, the total amount raised since inception is $22 billion. Some of the investors included Fidelity, BlackRock (NYSE:BLK) and T. Rowe Price Group (NASDAQ:TROW).
Regarding the details of the upcoming Ant Group IPO, the pricing details have yet to be set. But according to the Wall Street Journal, the company may raise over $30 billion at a $200 billion valuation. Consider that the biggest IPO to date was Saudi Aramco, which raised $29.4 billion.
Ant Group has also retained various U.S. Wall Street firms to lead the offering. They are Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS). The IPO will also list on the new STAR Market, which is an electronic system similar to the Nasdaq.
As for the timing, the IPO will likely hit the markets within the next couple months.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks