In this case, perhaps IPO could stand for:
“It’s Possible, Only…not now.”
News came at the beginning of this week that the hotly anticipated listing of Ant Financial, an affiliate of China’s Alibaba focused on electronic payments, is off the shelf — as in being pulled or delayed. The push out, which could now be years away, was confirmed with financial publications such as the Financial Times, via unnamed sources with knowledge of the decision.
The debut would have made a splash — maybe. Consider the fact that the latest valuation round, which came amid a capital raise this past June, valued the company at as much as $150 billion. At that time, Ant Financial, the operator of the biggest payment platform in China, grabbed $14 billion from a consortium of investors, which included a number of sovereign wealth funds, Warburg Pincus and others.
It was the biggest round raised by a private firm, and according to outlets like Reuters, helped paved the way to a listing on public markets.
However, that enthusiasm seems a bit subdued now. The company has stated that there never was a timeframe set for the IPO, and the implication there is that nothing was ever definitive.
But then again, the valuations, the funding, the rumors and the “now you see it, now you don’t” surprise seem to offer some clues about where markets stand in general, and where China’s competitive landscape is.
Pressures May Be Mounting
Looking at the stock market in general, valuations are stretched. On Tuesday (Aug. 21), Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC that the forward earnings multiple on the Standard & Poor’s 500 stock index is 17x — within a 90th percentile of history stretching back to World War II.
As for the company itself, the firm has been targeting shore and markets beyond home base, where Europe beckons, for example. The push abroad may be one that anticipates the continued spending of Chinese tourists. In other movement beyond China, Ant has taken stakes in Paytm in India and bought a Singapore-based helloPay. Yet, amid the trade war that seems to be lasting longer than some might have thought, might the U.S. be a market to be more firmly embraced later? Might there be some concern over tightening consumer purse strings?
Other pressure looms within China, too. The government has been looking to boost liquidity there, and, at the same time, has cracked down on money market funds and on some FinTech innovation efforts. There may be stricter capital requirements in the wings, too as interest income is falling in the wake of new central bank policies that mandate higher non-interest earning deposits for payment service providers by the beginning of next year.
At the more granular level, the battle for consumers’ hearts and minds for a share in the multi-trillion dollar payments market in China has become heated between Ant Financial and Tencent. The market has been growing at about 28 percent, and was worth a bit under $5 trillion in Q3 last year. Alipay has had a bit more than half of that market, down from 70 percent a few years ago. Tencent’s TenPay had about a 40 percent share, as noted by Analysys International.
So, Ant has gone from $14 billion to no market listing to get even more capital amid a hotly contested marketplace; from $150 billion implied valuation just recently — more than double the tally from 2016 — to, well, who knows?
We will know more when Alibaba reports earnings later in the week — Ant had a loss in the first quarter of this year. But until then, investors who may have been waiting with bated breath for news of a listing are going to have to exhale.