Alibaba will feel the Ant sting

Fri, Nov 06, 2020 – 2:52 PM

[HONG KONG] Alibaba is starting to feel the Ant sting. The e-commerce giant’s ties to the reeling financial technology company are weighing on its US$780 billion valuation. A suspended initial public offering (IPO) and Beijing’s new credit rules have hit just as growth at Alibaba’s core shopping business slows. Boss Daniel Zhang will have to start pulling harder on other levers.

Since Alibaba converted a profit-sharing agreement into a 33 per cent stake in the payments affiliate last year, the two Jack Ma-founded companies have worked closely together. More than two-thirds of transactions on Alibaba’s Chinese retail sites, for example, were settled through the Alipay app in the year to March. It also has the right to nominate two directors on Ant’s board. Unusually, the pair have equity-award schemes linked to one another. In the three months to September, Alibaba granted its employees over US$2 billion worth of Ant shares.

Mr Ma’s latest woes will be shared by Mr Zhang. Alibaba’s Hong Kong-listed stock price tumbled 7.5 per cent following the shocking last-minute suspension of Ant’s record share sale. The listing could be delayed for months. And even then, Ant’s mooted US$300 billion-plus valuation is apt to take a hit if new online lending rules dent growth.

There are other worries for Alibaba, too. State regulators are investigating how Ant uses offerings like Huabei, a virtual credit card service, to encourage poor and young people to amass debt, Reuters reported. Mr Zhang says his company does not track how much of its shopping transactions are funded by the service, but Ant’s IPO prospectus touts that “many consumers select Huabei as their preferred funding option in Alipay for online and offline purchases”.

A slowdown in the country’s consumer credit market could be painful for Alibaba. Revenue in its main commerce unit, which accounts for 84 per cent of the total, grew just 29 per cent from the September quarter 2019, to US$19 billion. That’s down sharply from the 40 per cent pace a year earlier despite the broader uptick in online shopping because of the pandemic. Mr Zhang has been ploughing funds into initiatives such as cloud computing and, more recently UK luxury retailer Farfetch. The pressure to deliver elsewhere is on the rise.

Chinese e-commerce company Alibaba on Nov 5 reported revenue of 155 billion yuan (S$31.59 billion) in the three months to end-September, an increase of 30 per cent from the same period last year.

Adjusted earnings, excluding share-based compensation and other one-offs, rose 44 per cent to 47 billion yuan.

Separately, Alibaba and Swiss group Richemont on Nov 5 announced a US$1.1 billion deal with online luxury fashion retailer, Farfetch.

Alibaba and Richemont will invest US$300 million each in Farfetch, and US$250 million each for a 25 per cent stake in a new joint venture that will include Farfetch’s marketplace operations in China.

Alibaba’s New York-listed shares closed down 2.7 per cent to US$287.75 on Nov 5.


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