Source: PaxForex Premium Analytics Portal, Fundamental Insight
Alibaba has taken steps that could revive the IPO of its Ant Group holding company. A previous attempt to float the company was priced at a huge sum. Although the IPO was postponed, Alibaba still owns a significant stake in this valuable company. And here's what's happening now.
Ant Group operates a digital payment app called Alipay. The company was founded by Jack Ma, who also founded Alibaba. Alipay's 1.3 billion users make transactions on Alibaba's e-commerce sites and wherever mobile payments are accepted. The app also allows users to access a money market fund, a "buy now, pay later" service, and online banking. Alibaba owns a 33% stake in Ant Group.
Ant Group planned to go public as an independent company in 2020, which would have valued the fast-growing company at more than $300 billion. At that point, Ant Group would have been bigger than U.S. banks Wells Fargo and Goldman Sachs.
Unfortunately for Ant Group shareholders, the IPO was derailed at the last minute by the Chinese government, which began issuing sweeping regulations on Chinese technology companies like Ant Group that provide financial services but are not regulated as financial institutions. Many Chinese stocks, including Alibaba, began a precipitous drop. Alibaba stock has fallen from more than $300 a share in October 2020 to its current price of about $90.
However, the People's Bank of China recently accepted an application from Ant to form a financial holding company. The acceptance of the application may indicate that Ant is now regulatory compliant and could be the basis for a new IPO attempt.
At the center of the controversy is former CEO and founder Ma. The charismatic man owns 50.52% of Ant Group and a controlling stake in many other Alibaba subsidiaries. The Wall Street Journal reported that Ma plans to relinquish control of Ant Group. In doing so, regulators may stop viewing Alibaba and Ant as companies with common control, and Chinese regulators may look favorably on Ant Group's IPO.
If Ant Group is worth more than $300 billion, what it was valued at before the failed IPO, then a third of Alibaba's shares would be worth about $100 billion. In addition, Alibaba's core businesses are its popular e-commerce platform and its fast-growing cloud business, which accounts for 5 percent of the global cloud market.
Overall, Alibaba generated $9.7 billion in net income for the year ended March 31, 2022. Thus, using an average five-year P/E ratio of 32 times, Alibaba should be worth $310 billion. If you add in the company's $100 billion stake in Ant Group, Alibaba's total value would be about $410 billion. Alibaba's current market value is only $275 billion, which could represent a significant opportunity for shareholders.
Regulation of Chinese fintechs was one of the reasons for the stock price drop, but those problems seem to be behind us. Shareholders are now struggling with the potential delisting of Alibaba stock from U.S. stock exchanges. The problem with delisting is that many large institutional investment firms cannot hold shares in companies that are not listed on a major exchange.
Many of these investors may have already gotten rid of their shares, which opens the door for individual investors to be able to hold shares if they move to over-the-counter markets or foreign exchanges. Ant Group's IPO could be a catalyst for the market to recognize the hidden value of Alibaba stock, which could prevent the company from being delisted.
As long as the price is below the level of 101.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 92.26
- Take Profit 1: 88.00
- Take Profit 2: 81.00
Alternative scenario:
If the level of 101.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 101.00
- Take Profit 1: 107.00
- Take Profit 2: 115.00
