Home Business Alibaba stock slides after China crackdown on Ant Group

Alibaba stock slides after China crackdown on Ant Group

Alibaba stock slid in early trading this morning after China cracked down on Ant Group. The People’s Bank of China ordered Alibaba’s Ant Group to return to its payment processing roots. That means the company’s investment, insurance and investment products may have to be dropped.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q3 2020 hedge fund letters, conferences and more

However, the central bank didn't call for Ant to be broken up entirely.

Alibaba stock skids on Ant Group news

This year, Alibaba is no longer the most valuable company in China after erasing nearly all of its gains in the stock market. The Chinese company's market capitalization plunged to $586 billion only two months after hitting a record high close to $859 billion.

The record high came as investors expected Alibaba to turn a hefty profit on Ant Group's initial public offering. Ant Group was close to a $300 billion market cap before its listing was canceled in November. The company started with its Alipay service, which found great success through use on Alibaba's e-commerce platform. However, it was the extra products that brought high margins.

Ant told to shed highest-earning businesses

Citing Ant Group's prospectus, Bloomberg reports that 63% of Ant Group's revenue in the first half of this year was from its digital finance technology platform, while 36% came from merchant services and digital payments.

Those percentages compare to the numbers from 2017 when the split was 44% to 55%. The CreditTech business has been the biggest driver of Ant's growth. The division earns commissions and fees off loans issued by partner financial institutions.

However, Chinese regulators have now ordered Ant to "rectify" its wealth management, insurance and lending divisions. According to Bloomberg, they openly criticized the company's "cavalier attitude toward regulatory requirements, sub-par corporate governance and regulatory arbitrage."

Removing opportunities for growth for Alibaba's Ant Group

By ordering Ant to exit its most important financial services, Chinese regulators not only reduce the company's value but also eliminate its opportunities for growth. Ant's payments business grew only 13% year over year in the first six months of the year. Meanwhile, the digital finance division grew 57%.

Another issue exiting those other businesses will cause is the elimination of network benefits. Ant wrote in its prospective that its "broad suite of digital payment and digital finance services attract to our Alipay platform a large number of consumers and businesses."

Alibaba stock slid in early trading this morning after China cracked down on Ant Group. The People's Bank of China ordered Alibaba's Ant Group to return to its payment processing roots. That means the company's investment, insurance and investment products may have to be dropped.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q3 2020 hedge fund letters, conferences and more

However, the central bank didn't call for Ant to be broken up entirely.

Alibaba stock skids on Ant Group news

This year, Alibaba is no longer the most valuable company in China after erasing nearly all of its gains in the stock market. The Chinese company's market capitalization plunged to $586 billion only two months after hitting a record high close to $859 billion.

The record high came as investors expected Alibaba to turn a hefty profit on Ant Group's initial public offering. Ant Group was close to a $300 billion market cap before its listing was canceled in November. The company started with its Alipay service, which found great success through use on Alibaba's e-commerce platform. However, it was the extra products that brought high margins.

Ant told to shed highest-earning businesses

Citing Ant Group's prospectus, Bloomberg reports that 63% of Ant Group's revenue in the first half of this year was from its digital finance technology platform, while 36% came from merchant services and digital payments.

Those percentages compare to the numbers from 2017 when the split was 44% to 55%. The CreditTech business has been the biggest driver of Ant's growth. The division earns commissions and fees off loans issued by partner financial institutions.

However, Chinese regulators have now ordered Ant to "rectify" its wealth management, insurance and lending divisions. According to Bloomberg, they openly criticized the company's "cavalier attitude toward regulatory requirements, sub-par corporate governance and regulatory arbitrage."

Removing opportunities for growth for Alibaba's Ant Group

By ordering Ant to exit its most important financial services, Chinese regulators not only reduce the company's value but also eliminate its opportunities for growth. Ant's payments business grew only 13% year over year in the first six months of the year. Meanwhile, the digital finance division grew 57%.

Another issue exiting those other businesses will cause is the elimination of network benefits. Ant wrote in its prospective that its "broad suite of digital payment and digital finance services attract to our Alipay platform a large number of consumers and businesses."

NO COMMENTS

The Life and Career of Charlie Munger

You can learn from Charlie Munger firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing

Never Miss A Story!

Subscribe to ValueWalk Newsletter. We respect your privacy.

    Subscribe

    We won’t send you spam. Unsubscribe at any time.
    ×
    Exit mobile version