Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988), the Chinese tech giant, saw its shares plunge 8.1% on the suspension of Ant’s IPO. Should investors buy the dip?
Fintech giant Ant Group’s dual IPO in Shanghai and Hong Kong was set to be the biggest in the world; at US$35 billion. That is, until China’s financial regulators threw a spanner in the works.
Alibaba shares got whacked hard. The Chinese e-commerce giant owns a 33% stake in Ant, which is the fintech group that owns the ubiquitous AliPay app.
For investors in Alibaba, though, what does the delay mean? Probably not much over the long term. Reasons cited by regulators for the IPO suspension included “disclosure” and “regulatory changes”.
Even though this is where apparently Ant fell short, the suspension was more likely a reaction to Alibaba founder and former CEO Jack Ma’s critical comments recently.
Speaking at fintech forum in Shanghai two weeks ago, Ma took aim at global and local regulators in the financial sector by commenting that they “stifled innovation” and didn’t take enough notice of development and opportunities for the young.
Regulation only thing stopping Ant’s march forward
As I’ve written previously, Alibaba Cloud – Alibaba’s cloud unit – is set to be one of the main growth drivers of the company in future.
Fundamentally, nothing has changed for Alibaba and its prospects on this news. With regards to Ant, the fintech giant is so pervasive in the everyday lives of Chinese citizens that only financial regulators can stop it.
Why’s that? Ant is a perfect example of the “network effect” in action. For tech firms building ecosystems, the more that people use a product, the more value that’s created.
Alibaba’s e-commerce platform has succeeded by doing exactly that. Likewise, Ant has also drawn hundreds of millions of users into its ecosystems that covers payments, insurance and wealth management, among others.
The figures speak for themselves. Ant has 731 million monthly active users (MAUs) and processed around US$16 trillion in total payment volume (TPV) in 2019. As a comparison, the latter is 25 times what PayPal Inc (NASDAQ: PYPL) processed in 2019 TPV (see below).
For Alibaba, being a part of the Ant growth story is just another reason to be invested in it for the long term.
If anything, the suspension is a reminder for investors that in China, regulators hold much more sway over the operating business landscape.
When it does eventually list, I believe demand for Ant shares will still be as strong as it is today. Similarly, for investors looking out over the next decade, Alibaba’s prospects remain as strong as ever.
Finally, investors should take note that Alibaba reports its second-quarter fiscal year 2021 results, before the US market opens on 5 November.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Alibaba Group Holding Ltd.
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Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.