Author | Zhang Jilong
Edit | peace of mind
Source | All Weather Technology (ID: iawtmt)
The Ant Group, which has an IPO market value of more than US$200 billion, started from Alipay. Now payment has lost its status as the “biggest revenue pillar”, but its status as a traffic portal cannot be underestimated. Looking at the payment arena, what is the value of Ant's payment business?
With the announcement of Ant Group that it will be simultaneously issued and listed on the Shanghai Stock Exchange Science and Technology Innovation Board and the Hong Kong Stock Exchange Main Board, the world's largest IPO is about to come.
According to previous media reports, Ant Financial is expected to go public in October this year, raising more than US$30 billion at a valuation of US$225 billion. This will break the record of the Saudi Arabian National Petroleum Corporation’s $29.4 billion in fundraising in 2019, making it the largest IPO in history.
The reason why Ant Group's listing has attracted so much attention depends on its unparalleled market position.
According to the prospectus, Ant Group's annual revenue in 2019 was 120.6 billion yuan and net profit was 18.07 billion yuan; the annual active users of Alipay APP exceeded 1 billion, the active merchants exceeded 80 million, and the cooperative financial institutions exceeded 2,000.
As the largest financial technology company in China, Ant Group has built an ecosystem that includes payment, credit, wealth management, insurance, and innovative businesses with Alipay as its core.
Among the many businesses of the Ant Group, the payment business is particularly special. It is the business of the Ant Group. It has been the core of the business for many years, contributing more than 50% of its revenue.
With the diversification of Ant Group's business and its transformation into a technology company, starting from 2019, the payment business has slipped from the position of Ant Group's "largest revenue pillar".
But as a traffic portal, the payment business is still irreplaceable. It still serves as the "base" of the Ant Group.
The payment business of Ant Group has long faced the competition from its biggest rival-WeChat Pay. In addition, a group of newly emerging giants such as Meituan and Pinduoduo are also actively deploying financial services. Payment is a necessary link for them to enter the financial field.
In addition, new payment bar code interoperability and digital RMB policies are on the way. These will bring variables to the next market pattern and may threaten Alipay’s “dominant” status.
The payment war is far from over. Looking at the entire payment industry, how to evaluate the value of Ant's payment business?
Ant's Pedestal
Payment business is the origin of the development of Ant Group. It can be said that the first half of the history of Ant is the development history of payment business.
Alipay started in 2004. It was originally to solve the trust problem in online transactions between consumers and merchants and act as a financial guarantee tool between sellers and buyers.
This transaction model quickly became popular within the Taobao system. In just one year, Taobao supported 70% of commodities in secured transactions.
The early rapid growth of Alipay was driven by the development of Alibaba's Taobao e-commerce business. At that time, Ali not only hoped that Alipay would only be used within Taobao, but also that it would expand to the entire third-party payment market.
Therefore, in 2007-2009, Alipay launched the "Tao Tao" plan and began to open up new markets outside Taobao. Alipay has successively launched in-depth payment cooperation with games, tourism, air transportation, insurance and other industries with a high degree of Internetization, even in the difficult-to-money field of public utility payment.
In order to solve the problem of payment success rate, in 2010, Alipay launched a quick payment function.
In 2011, Alipay was split from Alibaba into an independent entity, and in 2014 it had a new name-"Ant Financial" (renamed as Ant Group in June 2020), which is the parent company of Alipay.
In the years since then, the payment business has also become the foundation for Ant's other business incubation, and many new businesses have grown on the basis of the payment business.
For example, when Yu'e Bao appeared in 2013, Ant Financial's wealth management business began to take off; in 2014, the consumer credit product Huabei was launched, followed by lending, and its micro-lending business ushered in an explosion; insurance business and local life services are also no exception , Benefiting from the huge traffic of Alipay and growing rapidly.
The income from payment also accounted for the absolute majority of Ant Financial's income.
The media once exposed an Ant Financial’s financing document, which showed that in 2015 and 2016, the payment business contributed 64% and 65% of Ant Financial’s revenue, but in 2017, the proportion of payment revenue declined It's 54%.
In 2017, an important keyword for Ant Financial is transformation. In March of that year, Ant Financial announced in Beijing, "In the future, it will only do Tech (technology) and support financial institutions to do Fin (finance)."
Jing Xiandong, the CEO of Ant Financial at the time, publicly stated that the core of finance is risk management. TechFin uses technology and data capabilities to help financial innovation, serve ordinary consumers and ordinary merchants, improve the risk management capabilities of financial institutions, and help finance The organization is fully upgraded.
2017 became an inflection point for the payment business. After that, its revenue share within Ant Financial continued to decline.
In 2019, the proportion of revenue from the payment business, which is the "digital payment and merchant services" in the prospectus, has fallen below half of the total revenue, only 44%.
From January to June 2020, this proportion further dropped to 35.86%, while at the same time, the proportion of revenue from technical services, namely the "digital financial technology platform" increased to 63%.
The decline in the proportion of payment business revenue does not mean that its importance within the Ant Group has decreased.
The revenue share of each business under the Ant Group, the picture comes from the Ant Group prospectus
For Ant Group, the payment business is still the foundation of all businesses and bears the important task of importing traffic.
The research report of CITIC Securities believes that the three major sectors of Ant Group perfectly interpret the logic of drainage-realization-empowerment: payment plays the role of drainage, strengthens customer acquisition and stickiness, and realizes business drainage and data precipitation;
The digital financial technology platform plays the role of monetization, empowering internal customers and scenarios to cooperative financial institutions; innovative business plays the role of empowerment, exporting financial-grade technology to the outside world, and solving the pain points of different industries through the digital economy.
Today, Ant Group’s payment is no longer limited to serving various businesses in the Ali system. With its own business expansion and the rise of WeChat payment in 2014, the two parties have launched a war online, and Alipay’s influence has been Spread to various fields.
In 2019, the total payment transaction scale of Alipay platform reached 111 trillion, exceeding China's GDP and total retail sales of consumer goods that year. According to data released by the National Bureau of Statistics, China's GDP in 2019 was 99.0865 trillion, and the total retail sales of consumer goods in 2019 was 41.1649 Trillions.
In addition, according to Ant Group, the total amount of digital payment transactions in China in 2019 was 201 trillion yuan, which means that Ant Group occupied more than 55% of the market share.
In terms of growth rate, in 2018-2019 and the first half of 2020, the year-on-year growth rate of Ant Group's "digital payment and merchant service" revenue was 23.6%, 17%, and 13.1%, showing a downward trend. But its payment business still has a lot of market space.
According to research conducted by iResearch, the number of mobile Internet users in China reached 877 million in 2019 and is expected to reach 1.1 billion in 2025. The total personal consumption expenditure is expected to grow at a compound annual growth rate of 9.0% between 2019 and 2025, reaching 51 trillion yuan by 2025. The scale of digital payment transactions in China is expected to reach 412 trillion yuan in 2025.
Assuming that the market share of Ant Group in the payment market remains at 55%, the total payment transaction scale of the Alipay platform can reach 226.6 trillion by 2025, doubling the current market share.
In addition to the Chinese mainland market, Ant Group's payment business is also actively going overseas to expand its territory.
Through investment or self-built methods, Ant Group has cultivated 9 local versions of Alipay, located in Hong Kong, India, Thailand, South Korea, Philippines, Malaysia, Indonesia, Pakistan, Bangladesh and other places.
In terms of performance, during the 12-month period ending June 30, 2020, the total international payment transaction scale of Ant Group reached 621.9 billion yuan.
Alipay's opponent
Since the birth of China's third-party payment, its development history can be roughly divided into three stages: Internet payment in the PC era, mobile payment in the smartphone era, and offline payment.
At each stage, there are many players in the market.
In the second year (2005) after Alipay appeared, third-party payment companies blossomed everywhere. Tencent launched a professional online payment platform "Tenpay", 50 third-party payment companies were established this year, and foreign payment giant PayPal also entered China with a high profile this year.
However, at this stage, with the help of Ali's e-commerce business, Alipay is invincible and exists in the market as an oligarch. Analysys data shows that in 2013, Alipay's market share was close to 80%.
Entering the era of mobile payment, Alipay has ushered in its true counterpart-WeChat Pay. With the strong rise of WeChat Pay, in Q1 of 2018, according to iResearch’s statistics, Alipay’s market share “broken through 5” and fell to 49.9%.
The market structure of third-party payment transaction scale in China in Q1 2018, the picture is from iiMedia Consulting
In the previous ten years, Alipay could not find a competitor. Jack Ma once said in 2017 that when WeChat Pay joined the competition, Alipay's reaction was, "Wow! We have competitors."
WeChat Pay and Alipay have experienced a long-running war. The battlefield between the two sides ranges from online ride-hailing to shared bicycles to small shops at the end of the streets and red envelopes during the Spring Festival Gala.
In order to counter WeChat Pay, Alipay used to spare no expense. In 2016, Alibaba’s quarterly report as of March 31 of that year showed that Ant Financial’s quarterly net loss was 552 million yuan, which was caused by Ant Financial’s “marketing and promotional activities to increase the number of users and increase user engagement”.
According to the financial report released by Alibaba in 2018, Ant Financial's pre-tax losses in the first and third quarters of 2018 reached 1.901 billion yuan and 2.427 billion yuan respectively. The reason for the loss was also due to increased investment in customer acquisition-"In the first quarter of 2018, Ant Financial continued to increase investment, thereby achieving strong user acquisition and participation. These investments led to a net loss of Ant Financial this quarter." .
The prospectus shows that the sales expenses of Ant Group have increased significantly from 15.325 billion yuan in 2017 to 47.345 billion yuan in 2018, a year-on-year increase of 208.95%. This led to a year-on-year decrease of nearly 3/4 in Ant Group's net profit in 2018.
But the huge investment has brought corresponding returns.
By Q1 of 2019, Alipay's market share has returned to the "5 era", reaching 53.8%.
China's third-party payment transaction scale market pattern in Q1 2019, picture from iResearch
Alipay stabilized the battle line. According to an industry insider, through huge investment, Alipay has regained a portion of the offline market share from WeChat Pay.
With the end of the payment war between the two sides, the market share of WeChat and Alipay has basically remained stable, and it is difficult for them to make further progress.
Looking back at the payment battle between Ali and Tencent today, it resulted in two notable results.
One is that with WeChat Pay, Tencent's financial business, which was lagging behind in the Internet era, began to rise rapidly and became the strongest competitor of the Ant Group, rewriting Alipay's dominance.
As the industry's "boss and second" fight, other players' shares have been eaten up, and even disappeared.
"In recent years, the proportion of Alipay and WeChat has increased from 90% to 95%," Huang Shang, an executive of a third-party payment company, told All-weather Technology. He believes that the price behind this is that other third-party payment institutions are in the market. Become smaller.
This has led to the transformation of a large number of third-party payment institutions, trying to avoid the edge of WeChat and Alipay.
Huang Shang's organization is currently focusing on Internet payment, collection and payment services, and is also exploring cross-border businesses. In general, "focus on the b-end, take into account the c-end, and wait for opportunities."
In the era of mobile payment, UnionPay also personally end up as a payment tool. At the end of 2017, China UnionPay joined hands with commercial banks and payment institutions to launch the cloud QuickPass app.
However, although cloud QuickPass has a strong backing, it lacks support such as Taobao or WeChat in the payment scene, and lacks user stickiness. In the statistics of many third-party organizations, the market share of cloud flash payment is not high.
However, although today's payment market is stable, there are still challengers, such as Meituan and Pinduoduo.
In September 2016, Meituan acquired Qiandaibao wholly-owned and obtained a third-party payment license, and then successively obtained licenses for small loans, banks, insurance brokers, etc. to conduct business. But in the past few years, Meituan's financial business seems to have been tepid.
But this year, Meituan’s two actions in its payment business are eye-catching: At the end of May this year, a new "Meituan monthly payment" function was added, which supports deferred and installment repayments, and directly targets Ant Huabei; July 29 this year In Japan, Meituan caused controversy over the cancellation of Alipay's payment channel.
Pinduoduo is also showing signs of effort in payment.
At the beginning of this year, the licensed payment institution Shanghai PayPal Information Service Co., Ltd. completed the high-level change. The Pinduoduo team is fully stationed, and Pinduoduo co-founder Chen Lei is the chairman. Many outsiders believe that this move means that Pinduoduo will formally acquire Paypass and obtain a payment license.
According to the latest news, ByteDance has also obtained a payment license, forming a closed loop for e-commerce business. According to The Paper News report, Byte official stated that the starting point of this move is to improve user experience and at the same time, it will work with other payment methods to better serve users of its products.
It is not yet known how much variables the new giants will bring to the existing pattern when they deploy payment services.
In fact, many years ago, JD.com, which also started from the e-commerce business, also deployed its payment business. In 2012, JD.com acquired Internet Banking Online and later launched JD Wallet. But so far, the market presence of JD Pay needs to be improved.
Huang Shang, an executive of the aforementioned third-party payment company, believes that JD’s failure to pay is more of a strategic failure. “Their (JD’s) native resources are quite good. The strategy is conservative and the execution is swinging."
In contrast, Huang Shang is more optimistic about the prospects of Meituan and Pinduoduo doing payment, believing that "they all have opportunities."
The author of "Ant Financial: The Rise of Technology and Finance Unicorns" You Xi speculates that with discounts and subsidies, these giants can do payment in their own scenarios, such as Meituan’s takeaway scenes and fight Many payment scenarios.
For Meituan and Pinduoduo, there are still some external obstacles that need to be resolved when they want to make payments, such as "Tencent's will."
Meituan's 2019 annual report shows that Tencent accounts for about 18% of Meituan Dianping’s total shares and is its largest shareholder; Tencent holds 16.5% of the shares in Pinduoduo Tencent, second only to Huang Zheng, and is the second largest shareholder .
Whether Tencent is willing to give up WeChat Pay as the main payment channel of Meituan and Pinduoduo is an issue that the two companies need to deal with.
A question that the new giants still need to consider is whether they can make money by making payments now.
A person in the payment industry believes that it is difficult to make money in the payment industry now. At least when Alipay and WeChat have already occupied the market, it is difficult for new payment tools to be rolled out again, and the cost of their occupation of the market will be doubled. "Consumer habits are the most difficult to change."
However, making money is more important for pure third-party payment institutions, but it may not be the first factor that new giants should consider.
You Xi believes that for the new giants, more important than profit and loss is the data brought by payment, and controlling the data lays the foundation for other businesses.
How to assess value
Although it is a heavyweight player in the payment arena, it is not easy to value Alipay. You can only look for references from its target companies.
The research report of Guosen Securities estimates that from 2018 to the first half of 2020, Ant Group's digital payment business revenue is slightly lower than Tencent Financial's payment revenue.
With the flow of payment portals, Tencent Financial’s wealth management and credit businesses have also been continuously enlarged. According to Tencent's announcement, as of the first half of 2019, Licaitong's management scale exceeded 800 billion yuan.
In the first half of 2020, Ant Group achieved operating income of 72.53 billion yuan. According to the research report of Guosen Securities, Tencent Financial's revenue during the same period was about 44.5 billion yuan, which is about 61% of Ant Group.
Various comparisons between Tencent Finance and Ant Group, the picture comes from Guosen Securities
In 2018, Tianfeng Securities believes that the valuation of Tencent Finance reached US$120 billion to US$144 billion, which is close to Ant Financial’s valuation of US$150 billion when it raised funds in 2018.
But so far, Tencent Finance does not have an independent app. Its main product WeChat Pay is deeply rooted in the WeChat ecosystem, which also means that Tencent Finance is very dependent on WeChat.
Tenpay once revealed that it initially thought of making an independent app like Alipay, but considering that downloading the app is a relatively high threshold, Tencent gave up this strategy.
Compared with Tencent Finance, the relationship between Ant Group and Alibaba is more independent. In 2017, 2018, 2019, and January-June 2020, the payment processing and secured transaction service fees collected by Ant Group from Alibaba Group accounted for only 8.61%, 8.83%, 7.66%, and current operating income, respectively. 5.58%.
"In Tencent, the largest traffic portal is the social platform, and payment is to undertake these traffic, so WeChat payment is not as valuable as WeChat itself", the above-mentioned payment industry people mentioned that for Ali, the value of payment is different. Ant early The traffic comes from Taobao’s traffic. Now payment is the traffic portal, which is more valuable than other businesses.
He believes that if you look at it alone, payment can naturally cover almost all scenarios, but due to the low rate, it needs to form economies of scale and become a traffic center. Ant has already done this, but where does the traffic come from after the WeChat Pay spin-off is a problem.
The difference in positioning and importance means that there will be a gap between the value of WeChat Pay and Alipay.
However, the listing of Ant Group can bring valuation reference for Tencent Finance. Guosen Securities believes that "the market has not yet fully realized the commercialization potential of Tencent's financial technology business. With the listing of Ant Financial, the value of its financial technology business is expected to usher in a revaluation."
If you look at the world, Alipay is often compared with another company PayPal whose core business is payment.
Both companies started with payment services. Judging from the public data, PayPal's active users and transaction scale cannot match Alipay.
According to the financial report, in the fourth quarter of 2019, PayPal added 9.3 million active accounts, and the total number of active accounts increased by 14% to 305 million, including 24 million merchants.
Currently, Alipay has over 1 billion global annual active users, over 700 million monthly active users, and 80 million+ monthly active merchants. Active users and merchants far exceed PayPal.
Various key data disclosed in the Ant Group prospectus
In terms of transaction size, throughout 2019, PayPal processed 12.4 billion transactions, a year-on-year increase of 25%; the total payment for the year was US$712 billion, a year-on-year increase of 23%.
In 2019, the total payment transaction scale of Ant Group climbed to 111.06 trillion yuan; in the 12 months ended June 30 this year, it reached 117.096 trillion yuan.
The difference is that payment is PayPal's most important business and most important source of income, accounting for more than 90%. For Alipay, the payment business is no longer the focus of revenue and profitability, and more is acting as a traffic portal.
Since March of this year, PayPal's stock price has risen all the way, with the latest market value of 225.2 billion US dollars.
PayPal's stock price and recent trends
However, due to the many differences between PayPal and Alipay, it is difficult to directly benchmark the two in terms of valuation/market value.
In March 2020, Alipay carried out an upgrade and revision, announcing the upgrade to an open platform for digital life, helping service industry merchants complete the digital upgrade. Reflected in the prospectus, Ant categorizes payment and merchant services as a major "digital payment and merchant service" segment, and the prospectus stated that it is "expected that merchant service revenue will continue to grow."
This means that Ant Financial's payment business has been upgraded. Payment is only one part of its external services. In the future, more services will be developed and bring greater value.
Ant Financial has been walking a path that no one has walked. Therefore, it has to explore the valuation of each business.
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