Economic Moat: What to Expect from Ant Group's Future?

Ant Group, China’s financial technology giant, is expected to complete the initial public offering in Shanghai and Hong Kong at a $313 billion valuation (suspended as of November 3). And the IPO will create at least 18 new billionaires. But for potential investors who don’t have existing stakes in the company, how likely will they share Ant Group’s success going forward? Based on Warren Buffett’s value investing philosophy, you should invest in a wonderful company at a fair price to achieve good long-term returns. He suggested that a good company should have an economic moat. Alipay, the mobile payment platform, is Ant Group’s core offering. It helps attract customers to other profitable functions like lending and investing. It has 1 billion annual active users, most of which are in China. The already high adoption rate means China’s market of 1.4 billion people is close to saturation. And the company’s domestic growth potential will be limited. At the same time, Ant Group faces domestic competition, especially from Tencent who operates WeChat and Wechat Pay. But maybe the company should be even more worried about the state-backed competitors. The rapid development in financial technologies has become a threat to the traditional banking industry. And in China, the largest banks are directly controlled by the Chinese Communist Party. Besides, the People’s Bank of China, China’s central bank, has been developing a digital yuan payment system. It is still not clear how the central bank’s digital currency will affect existing digital payment platforms. Adding to the risks would be the U.S. sanctions and the loss of the manufacturing supply chain, causing the Chinese economy to slow down. For years, Ant Group has not been very successful with international expansion. And the company plans to use a portion of the IPO proceeds to fund overseas growths. One primary reason for Alipay’s past development has been its affiliation with Alibaba. That is not the case in other countries. Ant Group might get caught in the middle of the U.S.-China cold war. The diminishing trust means Ant Group’s potential expansion in Africa might also turn out slower than expected. Ant Group’s current valuation equals 36 times of forecasted 2021 earnings, close to the high end among companies in the same industry. Many high-profile IPOs in the technology sector were followed by poor stock performance. .

0:00 Introduction
0:54 The Saturating Chinese Market
3:09 Obstacles in Overseas Markets
7:30 Is the Price Fair?

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References:
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