Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988) affiliate Ant Group has many enviable qualities.
Ant Group, which Fortune calls the “crown jewel of Jack Ma’s Alibaba empire”, is one of the world’s largest fintechs and China’s leading payments company.
Ant’s mobile payment app, Alipay, has around 900 million users in China and possesses a lot of potential as a payments platform.
According to assessments made from Alibaba’s disclosures, Ant Group also generated a profit of around US$2 billion in the fourth quarter of 2019.
As a result of Ant Group’s enviable qualities, many think the company will be worth a lot when it goes public.
David Dai of Bernstein, for instance, thinks Ant Group could go public at a US$210 billion valuation. Others think it could be worth even more.
While Ant’s huge user base, profitability, and sizable valuation are frequently mentioned, the company also has some other qualities to like also. Here are two that I think investors should be aware of.
Synergies
Ant Group isn’t just one of the world’s largest fintechs. It also has an alliance with Alibaba that provides it with synergies and competitive advantages. The two have an alliance due to Alibaba owning one-third of Ant.
As an illustration of the teamwork, Ant Group and Alibaba are working together to penetrate China’s less developed areas, which consists of hundreds of millions of people.
In its March quarter earnings transcript, Alibaba writes:
“At the same time, we see significant potential for further growing our user base, the current figure for annual active consumers 780 million represents only 45% penetration of the population in lower-tier cities and in the rural areas of China.
So, there still is lots of room to grow in those regions and we intend to do so together with Alipay in driving a digitalisation strategy in those areas that will convert people into consumers.”
Given Ant’s alliance with Alibaba, Ant could find it easier to grow and compete.
Diversification
Ant isn’t just growing (when factoring out the effects of the coronavirus outbreak). It’s also diversifying, which makes it more attractive to many investors as well.
Although Ant is still arguably best known for its mobile payments app Alipay, the company is rapidly branching into other services with Alipay’s help.
Given the payments data that Alipay generates, Ant has used that to gain market share in China’s consumer and SME lending markets. With more information, Ant can better price a loan in many cases.
Given Alipay’s huge user base, Ant has successfully convinced some users to use its wealth management services.
With all the technology that Ant has developed for apps such as Alipay, Ant has also begun selling some of the developed “digital infrastructure” tech services to other financial institutions, such as insurance companies and banks to make them potentially more efficient.
Given its relationship with many merchants, Ant has also begun selling its digital tech services to other service institutions as well.
Foolish conclusion
Although there are risks in terms of competition and regulation, there is a lot to like about Ant Group.
Ant’s alliance with Alibaba and the company’s increasing diversification are yet more reasons to like the company.
I think if Ant debuts at a US$210 billion valuation and the execution continues, it will be a great investment for long-term investors.