Ant Group, a subsidiary of Alibaba, announced plans for the long-awaited double listing in Shanghai and Hong Kong on Monday.
The company is known for operating Alipay, one of China's most popular mobile payment systems. However, the Ant Group has expanded its reach from wealth management to microcredit. It also focused on selling financial technology products to corporate customers.
While the Ant Group may not be as well known outside of China, its rating may outperform some of Wall Street's largest banks, according to an analyst who spoke to CNBC on Tuesday.
Alipay was launched in 2004. It is a so-called quick response or QR code payment system. A user presents a digital barcode on his phone, which is then scanned by the retailer. Alipay can also be used to pay for items online.
In 2011, Alibaba sold control of Alipay to a group controlled by Jack Ma to meet Chinese regulations. Yahoo, who was Alibaba's largest shareholder at the time, said that the transaction took place without his knowledge of what the Chinese e-commerce giant denied at the time.
Yahoo, another major shareholder, SoftBank and Alibaba, finally got a deal in the same year: Alibaba would receive at least $ 2 billion but no more than $ 6 billion if Alipay went public. Alipay also had to pay royalties and continue to serve Taobao, one of Alibaba's e-commerce platforms.
Ant Financial was founded in 2014 to take into account not only Alipay, but also Alibaba's larger push into financial technology.
Then Alibaba bought a 33% stake in Ant Financial in 2018. This was possible due to a clause in a contract between the two companies in 2014 when Ant was founded. Alibaba founder Jack Ma continues to hold the majority stake in Ant.
Ant Financial was recently renamed Ant Group.
The Ant Group has over 900 million users for Alipay in China. The company also offers financial products, including wealth management, corporate loans and insurance.
An employee scans a QR code (Quick Response), which is displayed in the Ant Group Alipay app. The Ant Group is preparing for a double IPO in Shanghai and Hong Kong.
Bloomberg | Bloomberg | Getty Images
These digital financial services contributed more than 50% of Ant Group's total revenue for the fiscal year ended March 31.
But Ant has recently focused on focusing more on what it calls technology services. This creates financial technology products that can be sold to corporate customers for a license fee. Eric Jing, former CEO and now current Ant Group CEO, told CNBC in an interview in 2018 that technology services would be the company's main business in the future.
Ant's international strategy focuses on various investments in e-wallet companies around the world, such as the Indian PayTM. The company has not attempted to market local versions of Alipay in countries around the world. The only Alipay wallet outside of mainland China is in Hong Kong.
The Ant Group will simultaneously conduct an IPO on the STAR Board of the Shanghai Stock Exchange and the Hong Kong Stock Exchange. The STAR Board is China's quest to create a domestic equivalent to the Nasdaq in the United States.
So far, however, there are no details on the pricing of shares.
The Ant Group's last major fundraiser took place in 2018, when investors put $ 14 billion into the company. At the time, citing sources, the Wall Street Journal reported that the company was valued at $ 150 billion.
According to David Dai, senior analyst at Bernstein, who ran his own calculation late last year, the valuation could now be as high as $ 210 billion.
"The company's earning power improved after we wrote this report, so I would expect valuation to increase compared to the last round of valuation at the end of last year," Dai told CNBC's "Street Signs." on Tuesday.
A valuation of over $ 200 billion would make Ant bigger than some of America's largest banks, including Goldman Sachs and Wells Fargo.
What does this mean for Alibaba?
Alibaba has a 33% stake in the Ant Group. Hong Kong-listed stocks of the e-commerce giant rose over 5% in the news about Ant's listing. Investors see the listing as positive for Alibaba.
"We believe Ant's potential listing may further release its value as a public company," said Jefferies in a note.
The investment research firm added that Ant represents $ 19 of Alibaba's American Securities (ADS) with a $ 150 billion market cap.
In the meantime, Bernstein's Dai said the Ant Group would "significantly increase Alibaba's current share price."
Alibaba's US stocks closed on Monday at $ 254.81. Dai said his current price target for the stock is $ 290, which could be achieved by the end of this year or early 2021.