HONG KONG (Reuters Breakingviews) - Ant is doing all it can to project prosperity. The financial technology company priced both sets of its shares with a lucky number eight, which sounds like “fortune” in Chinese. To live up to that symbolised measure of success, and a $312 billion valuation, it will have to grow quickly.
Jack Ma’s payments-to-wealth management colossus is set to raise $34 billion in the world’s largest initial public offering ever, surpassing Saudi Aramco’s last year. The latest figures will mean Ant is worth 50% more than the mooted $200 billion in August and be larger than banking titans ICBC and JPMorgan.
In one sense, however, the approach is conservative. Shares in the dual-listing will be offered at HK$80 and 68.80 yuan in Hong Kong and Shanghai, respectively. That represents roughly 24 times the forecast 2022 adjusted earnings pitched to investors. Payments peer PayPal trades on twice that multiple in the United States, while rival Tencent fetches around 27 times.
At the same time, there is abundant optimism involved. Ant generates more than half its revenue by matching users on its Alipay app with financial institutions which it charges a fee. Annualising Ant’s first-half adjusted earnings would mean about $7 billion for the year. To get to a $312 billion valuation would require nearly doubling the bottom line in two years.
If the company can maintain its first-half 27% net profit margin, Ant would then have to pull ahead of rivals, squeeze a bigger cut from vendors, or both. Assuming fees stay flat, to live up to the imputed valuation Ant would need to increase its market shares to at least a third in online credit, insurance, and wealth management from less than a quarter in each, a Breakingviews calculator suggests.
A lot rides on consumers and regulators alike. Ant’s Alipay app already counts 731 million monthly active users as of September. Adding too many more sounds a stretch, but selling more services to each of them is plausible. Beijing is a big risk, however. Look no further than Ant’s once-booming money market fund, Yu’e Bao, whose unchecked growth has since been restrained by new rules. Bad luck sometimes comes along, too.
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