- A sudden, severe reduction in the intrinsic value of Ant’s business rendered the offering non-viable.
- The de-valuation was not the result of a traditional business set-back.
- It arose from a regulatory change that effectively re-categorized the company as a Bank.
What happened to Ant this month is looking more like an amputation says George Calhoun in an article published in Forbes.
What is Ant Group?
In June of this year, the company then known as Ant Financial Services changed its name, and became The Ant Group. Its biggest business has been ginning up mountains of easy credit for Chinese consumers and small businesses. It has been enormously innovative, and enormously successful.
Instead of emphasizing financial services, Ant wants to be seen as a Tech company, specifically a leader in Fintech.
Ant has grown by outgrowth. Each business model seemed burst its bonds to spawn the next one, to overcome some obstacle, or to exploit some fortuitous possibility.
Foundation of Ant
When Ant’s parent, Alibaba, was challenged to find ways to enable ordinary consumers to carry out their Amazon-style online purchases on its website. the company invented Alipay an online and mobile payment platform that swiftly dominated the digital payments business – which in turn became the foundation of Ant, spun off from Alibaba in 2014.
Ant branched into credit scoring – mining the big data from its own transaction flow to completely automate the assessment of a customer’s credit-risk and capacity.
Ant’s high-tech approach to everything
The natural next step was to offer that credit to its customers – which it could do based on artificial intelligence and analytics. Loan approvals could be executed in just minutes without involving actual human decision-makers. Ant’s loans are unsecured; the analytics handle the risk assessment.
Ant found it could hand the loan off to some traditional bank, eager for the business and happy to take Ant’s technological say-so as to the borrower’s credit quality. In short order, originating these consumer loans became Ant’s biggest, fastest and most profitable business.
Ant’s rise is astonishing, inspiring, revolutionary.
Which Category Does Ant Belong To?
Jack Ma and Ant’s management
“Ant had gone to great lengths to brand itself as a tech firm, not a bank. It describes its business as “techfin”—i.e., putting technology first—not fintech. In the lead-up to its listing, it asked brokerages to assign tech analysts, not banking analysts, to cover it.”
The name change was part of this campaign. The IPO prospectus touted the fact that 60% of its employees are engineers and programmers.
Ji Shaofeng
“Although Ant is trying to phase out of its financial identity and emphasize itself as a digital technology firm, the dominant part of its revenue, which comes from its credit business, and its high leverage ratio have always attracted the wide notice of both regulators and the capital markets.”
The Wall Street Journal
“Beijing Wants to Treat Ant Like a Bank and Its Value Hangs in the Balance”.
De-valuation of Ant’s IPO
Victor Galliano, a former Barclay’s analyst, has built a bottom-up, sum-of-the-parts model, which currently yields a base case valuation of about $250 Billion – down about 20% from the IPO offering price. His more pessimistic case projects a 33% de-valuation. About which we have talked in article China Shows the Door To Jack Ma, Halts Ant Group’s IPO.
Several analysts projected prior to the IPO cancellation that Ant would likely have ended Day 1 with a valuation of $400 Billion or more. In light of this lost upside, the value-ectomy looks even larger.
another lens on Ant’s loss of value is the drop in the parent company Alibaba’s own market capitalization. Its share price fell 18% in three weeks, a reduction of about $130 Billion in value. Alibaba owns 33% of Ant.
In any case, between Ant and Alibaba, Jack Ma did not have a good day. Ant will end up spinning off or divesting the consumer credit business. The price of regulatory compliance is too high, and it is not really in Ant’s or Alibaba’s interest to compete as a conventional bank.
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Source: Forbes
