<Editor's Pick>118 trillion payment size plus 1 billion users, the secret in Ant Financial's prospectus

Ant Financial's IPO has been in the news for months, and on the evening of August 25, Ant Group filed a listing prospectus (draft filing) with the Shanghai Stock Exchange's STAR Market. The company simultaneously submitted the A1 Application Proof to the Hong Kong Stock Exchange, marking a key step towards A+H listing. This is the first time Ant Finance has fully disclosed the big picture, revenue, and other core data and future plans of the business.

According to the prospectus, Ant Group intends to issue a combined number of new shares in A-shares and H-shares of not less than 10% of the total post-issue share capital of not less than 30,038.97 million shares (before green shoes), implying that not less than 3 billion new shares will be issued.

Although the offering price per share and target valuation has yet to be determined, it is widely believed that Ant Finance will probably set one of the world's largest IPO records in recent years. When Ant Group raised its Series C round in 2018, it was already valued at $150 billion according to published reports. The industry believes that the valuation of Ant Financial's IPO in both places at the same time is more than $200 billion.

Ant Group's full-year revenue for 2019 will be 120.6 billion yuan and net profit will be 18.07 billion yuan, according to the prospectus document. From January to June this year, Ant Financial's revenue was $72.5 billion. As a giant in China's mobile payment sector, Ant Group's total payment transaction volume in China reached RMB 118 trillion in the 12 months to 30 June 2020, accounting for more than 50% of the digital payment market. Meanwhile, Alipay, one of Ant Group's most popular apps, has surpassed 1 billion annual active users.

 

Among 100 billion revenue growth, 60% of it comes from technology services.

This offering document discloses Ant Group's revenue for the first time:

The company's revenue in 2019 was $120.618 billion, surpassing the $100 billion mark. Comparing to $85.722 billion in 2018, the company reached an increase of more than 40% year-on-year. This rapid growth momentum remains unchanged in the first half of 2020 under the impact of the pandemic, with Ant Financial's revenue reaching 72.528 billion yuan from January to June this year, an increase of more than 38% year-on-year.

The revenue was $65,396 million, $85,722 million, and $120,618 million from 2017 to 2019, respectively, and $72,528 million in the first half of 2020. As for net profit, from 2017 to 2019, it was 8,205 million yuan, 2,156 million yuan, and 18,072 million yuan, respectively, and net profit was 21,923 million yuan in the first half of 2020.

In terms of revenue composition, it is primarily made up of digital payments, merchant services, digital fintech service fees, and innovation business. In particular, half of the revenue comes from digital fintech services revenue, with the scale of 2019 revenue at 67.784 billion yuan, a high proportion of 56.2%.In the first half of 2020, the figure rose to 63.4%.

You can't talk about Ant Financial's main source of profit without mentioning two important loan products, namely Jiebei and Huabei. In particular, Jiebei can provide at least billions of yuan of profit for ants every year, but according to the prospectus of Ant Financial, the company has a total credit size of 2.1 trillion yuan, 98% of which comes from cooperative banks and ABS issuance. The industry generally refers to this type of model as an Internet syndicated loan business.

According to the prospectus documents, the percentage of credit balances contributed by the Ant platform that is included in the balance sheet of self-managed loans (mainly from Ant Merchant, Ant Micro, and Shangrong Factoring) has been declining year by year. As we can see, Alipay is mainly acting as a platform to facilitate transactions in it. It is the licensed financial institutions such as banks that are behind the independent wind control, lending to users, and charging interest.

That's why Ant Financial Services has been emphasizing that it is a technology finance company, not a fintech company, in line with Jack Ma's statement that "Ant Financial will never be a bank.

 

Post-IPO ambitions, technology, digitalization and globalization

There were jokes that the entire floor of the company was cheering after Ant Group's IPO plans were revealed. However, as a team where more than 60% of the staff are technical specialists, the probability is that the programmers will still continue to write code after the IPO.

According to the prospectus, the fundraising will be used for three main things: 40% of the investment will be used for innovation and technology, followed by enabling merchant development and upgrading the digital economy, as well as strengthening global collaboration and contributing to global sustainability.

In March, Ant Group announced the transformation of Alipay into an open platform to help merchants grow and upgrade the digital economy. There are already more than 80 million merchants served by Ant Financial, and it is predictable that this number will continue to rise significantly in the future. Ant Group CEO Hu Xiaoming once said that China's $50 trillion offline services will be 50% digitized in the next five years and that the $30 trillion markets are a whole new growth area for Ant Financial.

 

This is an article from WeChat official accounts GeekPark(ID: geekpark), written by Jing Yu, translated by Linda Yang.