Big Ask

Temasek Has Rose-Tinted Glasses for Ant

The payments provider faces numerous regulatory headwinds.
Photographer: Shiho Fukada/Bloomberg
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Temasek Holdings Pte has pretty high hopes for Ant Financial.

It wants to lead a round of funding that could value the Alibaba Group Holding Ltd.-backed company at $150 billion. The Wall Street Journal and Bloomberg News reported on the deal Tuesday.

I assume Singapore's state investment firm expects significant upside on that. After leaving room for a profit at IPO and a public-trading bump, Temasek probably thinks Ant is worth at least $200 billion at listing, which means around $250 billion on public markets. That's a lot to ask.

In the final full year before its IPO, Alibaba generated $2.8 billion in net income attributable to ordinary shareholders. A survey of analysts came up with a valuation of $153 billion in March 2014, six months before the company's eventual debut. Alibaba closed on day one at $231 billion. Ant has produced a 13.2 billion yuan ($2.1 billion) profit over the past year, according to Bloomberg Gadfly calculations.

Steady On

Ant Financial's profit has risen, but not steadily

Source: Alibaba filings

Note: Ant Financial's profit is derived from its 37.5 percent contribution to Alibaba each quarter.

Alibaba was able to grow into its valuation unimpeded, thanks to robust expansion of China's consumer sector and the rise of e-commerce. Three-and-a-half years later, it has a market cap of $454 billion. For Ant to follow the same trajectory it'll need to keep going deeper into the financial and personal lives of Chinese citizens, finding more ways to extract value in the form of commissions, fees or data.

Facebook Inc.'s Mark Zuckerberg was just schooled on the political risks of mishandling user information. And while China may view data privacy differently to the U.S., it would be a mistake to think the government takes a laissez-faire approach.

As fellow Gadfly Shuli Ren has pointed out, Ant faces numerous regulatory headwinds that cast doubt on the inevitability of any IPO. Competition, notably from Tencent Holdings Ltd., has also hurt, and contributed to a 90 percent drop in earnings in the December quarter after Ant spent big to lure new Alipay wallet users.

Unstable

Ant Financial's earnings have been very up and down

Source: Alibaba, Bloomberg Gadfly

Note: Ant Financial's profit is derived from its 37.5 percent contribution to Alibaba each quarter.

Providing payments, credit scores and loans is also a more sensitive caper than selling toilet paper and televisions, which makes the very visible hand of the Chinese government one of Ant's biggest risks. There are several ways in which the People's Bank of China has rained on Ant's parade.

Even if Ant's profit rebounds, investors would be remiss to ignore these instabilities. Tencent provides stiffer competition to Ant than Alibaba ever faced as an e-commerce player in its pre-IPO days. And there are many other fintech firms ready to eat away at both giants.

Temasek may be right in betting on a bright future for Ant. But $150 billion makes you wonder if it's wearing rose-tinted glasses.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tim Culpan in Taipei at tculpan1@bloomberg.net

    To contact the editor responsible for this story:
    Katrina Nicholas at knicholas2@bloomberg.net

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