Biggest. Unicorn. Ever.

The number 9 is an auspicious one in China, as its pronunciation is very similar to the word “Everlasting”. Online resources tell us that bridegrooms give the traditional red packets of cash to their future in-laws with amounts that include only the number “9”. Birthdays that end in “9” are cause for special celebration because in terms of human existence, “everlasting” implies (at the very least) a long, long life.

Recent news that Chinese tech unicorn Ant Financial is raising $9 billion supports the notion that this is a really good number; that money comes with a record-breaking valuation of $150 billion. This makes Ant’s valuation larger than:

  • Goldman Sachs (the largest financial weighting in the Dow): $98 billion market cap
  • PayPal (the largest pure Fintech play in US public markets): $92 billion
  • Blackrock (the largest asset manager in the US): $86 billion
  • IBM (the oldest pure Tech company in the Dow): $143 billion
  • Any Financial company in the S&P 500 except for JP Morgan, Berkshire Hathaway, Bank of America, Wells Fargo and Citigroup

Not bad for a company that only started in 2003 under the name Alipay (as part of now-public Alibaba) and rebranded as Ant Financial in 2015. So how is it worth $150 billion? A few statistics:

  • Alipay has a 53% market share of mobile payments in China. Tencent’s Ten Pay has a 40% share.
  • The Chinese mobile payment market is large and growing at $49 trillion in 2017, up 41% from the prior year (data source at the end of this section).
  • Chinese consumers are adopting mobile payments a quick rate, with growth from 4 billion transactions in 2013 to 97 billion last year.
  • One market research firm we have seen cited in several news publications estimates that by 2021 some 79% of Chinese smartphone users will be transacting with their mobile devices, versus 23% in the US and 15% in Germany.
  • In addition to mobile payments, Ant also runs an investment fund, offers micro-loans, sells insurance, and operates an online bank.
  • Ant’s claimed total customer count: more than 450 million people.

Why this is important:

#1. Ant Financial shows it is possible to retain a premium valuation even at scale and in a decidedly dull industry – Financial Services. Right now, there aren’t many analogs in US banking; PayPal and Square are the closest, and both are still working on the regulatory requirements to scale their businesses up to the market opportunity Ant already has in China.

Yes, the Chinese economy is growing faster than the US, and their citizens seem keener to go “full mobile” than their American counterparts. All that certainly helps Ant’s valuation.

But the fully mature and low-valuation US banking industry should see the writing on the wall, even if it is in Mandarin. The classic disruption paradigm of mobile plus high-speed Internet plus killer app clearly works in Financial Services.

#2. If it is within your investment mandate, we encourage you to look at Alibaba. That already public company announced earlier in the year that it would take up to a 33% stake in Ant Financial, which it originally started and then spun off 7 years ago. Numerous press accounts at the time of the investment cited the possibility that this move signaled the possibility of an initial public offering later this year. Given the size of this last round and the near term growth potential for the online payment market, this could be a good catalyst for the shares of Alibaba.

Sources:
Background information on Chinese mobile payments: https://www.prnewswire.com/news-releases/global-and-china-mobile-payment-industry-report-2018-transactions-approximated-rmb29497-trillion-in-china-in-2017-an-upsurge-of-414-from-rmb2086-trillion-in-2016-300592556.html

http://www.scmp.com/tech/apps-gaming/article/2134011/china-pulls-further-ahead-us-mobile-payments-record-us128-trillion

Good article on Alibaba vc Tencent in the Chinese online payment wars: https://www.forbes.com/sites/ywang/2018/03/28/is-alipay-losing-to-wechat-in-chinas-trillion-dollar-payment-war/#6eb21fe88822

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