Alibaba Buys Stake In Ant Financial after Positive Third Quarter in 2017

Alibaba Buys Stake In Ant Financial after Positive Third Quarter in 2017

Alibaba Group Holding Ltd., the most significant company in China’s multibillion-dollar e-commerce market, announced on February 1, 2018, that its third-quarter revenue increased by 56 percent. Expectedly, the group later rescaled their forecast for the year ahead by raising the expected revenue from 49 to 53 percent to 55 to 56 percent.

Alibaba will also be acquiring a 33 percent stake in Ant Financial, a payment affiliate. This acquisition marks an important step for Ant as it prepares to go ahead with its initial public offering (IPO).

Big Leap for Fintech and Blockchain

For the uninitiated, Ant Financial is also building a blockchain platform for donations and was valued at $60 billion in 2016.

“This is no secret, everybody knows that Ant Financial will IPO, and (buying the stake) is just something they had to do before that happens,” Reuters cites Beijing-based analyst Li Chengdong as saying.

An encouraging growth rate, coupled with the bid to move closer to Ant – the company behind the massively popular online payment system Alipay – is likely to help Alibaba take an even bigger lead over its competitors in the e-commerce sector.

It is worth noting here that revenue for the fourth quarter increased to approximately $13.2 billion, up from $8.4 billion a year earlier during the same period. Analysts, on the other hand, were expecting to see revenue of roughly around $12.7 billion. Based on the adoption rates for blockchain technology, much of this increased revenue could be due to the blockchain platforms and fintech partnerships the firm has been taking part in as of late.

Among other perks, the new Ant deal will replace the existing system that gives Alibaba 37.5 percent of the former’s profit before taxes. However, the deal will bear no cash impact on the e-commerce giant. Daniel Zhang, Alibaba’s CEO, said in a statement:

“Importantly, an equity stake in Ant Financial enables Alibaba and our shareholders to participate in the future growth of the financial technology sector.”

The deal was assisted by Credit Suisse, the financial adviser of Alibaba, while King & Wood and Morrison & Forester oversaw the legal aspects of the deal. Pricewaterhouse Coopers handled the taxes.

Meanwhile, in a related development, Alibaba is seeking new avenues including offline retail, cloud computing, and payments to maintain a consistent growth rate. The company hopes that these avenues will help replicate the rapid growth of 2017, which made it one of the most valuable companies in the world with a market cap of over $520 billion.

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