Issue 2 - On IPOs, auto repair and TikTok

In today’s Finshots brief

-We talk about the Ant Financials IPO

-Digitization of China’s auto-repairs industry and

-The TikTok deal

The gigantic Ant IPO

After assessing early investor interest, Fintech giant Ant Group has raised its IPO target from $30 billion to at least $35 billion. In what is likely going to be the biggest initial public offering ever, Jack Ma’s company is going to list simultaneously in the Hong Kong and Shanghai stock exchanges.

And it seems well poised to create a lot of buzz! For the first 6 months of 2020, Ant made profits of $3 billion on revenues of $10.5 billion- that’s about a 30% net profit margin. Over half of the company’s revenues in 2019 came from financial services like lending, wealth management and insurance, while most of the other half came from processing payments. So let’s look at these sources in more detail.

Digital payment and merchant services (Alipay)

First up, Alipay. This is where it all began for Ant. The payment provider was created in 2014 to facilitate transactions for Alibaba’s e-commerce platforms. Eventually, Alipay started providing payment services for a multitude of other online and offline retail outlets.

Today, over 80 million merchants use the app to help 711 million monthly active users do everything from recharge their phones, order food, book flight tickets and even buy property. Alipay makes money by charging merchants fees based on a percentage of their total transaction value conducted using the app.

In 2017 and 2018, Alipay was Ant’s major source of revenue, but by the first half of 2020, the growth slowed down because of a slump in the payments sector.

Which brings us to Ant’s…

Digital finance technology platform

In 2019, Ant began making most of its revenue from its digital finance technology platform. Here, they charge fees from the likes of banks, asset management companies and insurance agencies who use Alipay to extend loans to customers, sell them mutual funds or offer them insurance. These partners essentially pay for Alipay’s wide customer base and Ant’s technology- and they contributed a whopping 63% to Ant’s revenue in the first half of 2020.

This platform has three parts: CreditTech, InvestmentTech and InsureTech.

CreditTech holds Ant’s consumer credit business, through which the company extends small unsecured loans to its Alipay users. The services it uses for this purpose are Huabei (Just Spend), which lets people buy things like Smartphones and TVs on credit with no-interest EMI, and Jiebei (Just Lend) which finances things like vacations and education for consumers with high credit scores.

Ant’s CreditTech business is the largest single source of revenue, with a contribution of 39% from January to June.

Then there’s InvestmentTech, a platform which allows Alipay users to earn interest on the idle cash that they have parked within the app. Investors can start with as little as 1 yuan.

And finally, we have InsureTech, under which Ant sells life, health, property and casualty insurance policies from around 90 insurers in China- taking a cut, of course. The unit’s revenue rose 47% to 6 billion yuan in the first half of this year- making up for 8% of total sales.

So there you have it- this is Ant’s basic business model. Are you excited for the IPO?

Alibaba and Tencent get into the auto-repair business

Over the last 10 years, the number of cars in China has quadrupled to 260 million. And the average age of this fleet is now approaching 6 years- the point after which vehicles start needing major maintenance and repairs. This is leading to the birth of a huge aftermarket which will be worth $524 billion by 2025, according to consulting firm Frost & Sullivan. So it comes as no surprise that e-commerce giants like Tencent and Alibaba are trying to milk out this opportunity.

Until now, China’s car-repair industry has mainly been dominated by independent garages and ones owned by automakers. But now, these tech giants want to bring them together in a digital-first offering. You see, Alibaba’s Tmall and Tencent-backed JD.com have been selling car parts online for a very long time. But now, they want to capture the entire value chain. They want consumers to buy the parts online through these platforms, go to their affiliated apps WeChat and Alipay, and book a slot at garages either owned or franchised by them.

Unfortunately, this leaves run-of-the-mill garage owners in a quandary- they can either join forces with these digital players or go out of business. Because once these behemoths disrupt the market, they will stand little chance of survival.

TikTok is still on shaky ground

You probably know that US President Donald Trump has been threatening to ban Chinese video-sharing app TikTok for weeks now. TikTok has 100 million users in the States, and Trump fears that the app will pass along their personal data to the Chinese government. So he gave parent company ByteDance an ultimatum- either give control of the app’s US operations to an American company or see it banned.

Well, ByteDance chose the former. Over the weekend, Oracle and Walmart agreed on a deal that would give them a combined 20% stake in a new company called TikTok Global, which would be headquartered in the US. 4 out of 5 board members will be Americans.

Oracle said it would host the personal data of Americans on its cloud platform, and it will also review the app’s source code to make sure there are no backdoors through which the Chinese government can spy on the users. But there’s still a problem.

Contrary to Trump’s demand that it be totally controlled by an American company, ByteDance will still own 80% of TikTok Global. And this detail caused the president to proclaim that he would rescind his blessing for the deal if the Chinese company retains control of the company. Oh well.

Unexplored skies

Aircraft manufacturer Airbus is under enormous pressure from its biggest shareholders, the French and German governments, to speed the commercialization of emission-free technology. So now, the company has unveiled three designs it’s studying to build hydrogen-powered aircrafts. Know more.

Increasing support

On Sunday, the Indian Parliament passed two farm bills which claimed to give farmers marketing freedom and better price for their produce. But farmers and lawmakers, worried that the bills would end the Minimum Support Price (MSP) regime, broke out in protests. So now, the government has increased the MSP for six rabi crops. Read more.

Mi Store on Wheels

To make up for the lack of traffic in stores during the pandemic, India’s top selling smartphone brand Mi is now taking their products directly to consumers through their new initiative- Mi Store on Wheels. Know more.

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-Written by Vedika Agarwal and Akshay Tater