First of all, ant group has made great progress in business diversification in the past year. The micro loan technology platform business, which provides online loans to consumers and small businesses, has surpassed mobile payment as the groups largest source of income. The main products of micro loan technology platform include Huabei and jiebei, providing consumer credit and credit for small and micro operators. In the first half of 2020, the platform achieved a revenue of 28.586 billion yuan, accounting for 39.41% of the groups total revenue of 72 billion yuan (about 10.4 billion US dollars). By the end of the month, the total balance of the small credit business operators reached RMB 2.6 trillion.
Huabei provides consumers with up to 40 days of free credit, while borrowers who need more cash loans can choose to borrow. Most of the credit provided by these two products has a daily interest rate cap of 0.04%, or an annualized rate of 15.6%. There is no guarantee for either.
The way ants deal with credit risk also looks like a credit card company. The groups prospectus repeatedly reminds readers that it does not use its own balance sheet or provide guarantees. As of June, about 98% of the credit balance was underwritten by partners such as banks or trust companies. The ant just earns service fees from its partners.
Ant said it would rely on intelligent decision-making systems to ensure that it provided valuable borrowers to its partners. However, in the current economic environment, this is a big assumption. The groups prospectus States, if the borrowers credit position deteriorates, or we are unable to track its deterioration, the criteria we use to analyze the borrowers credit position may become inaccurate and our risk management system may become ineffective.
Given the available information, it will be difficult to make a fair valuation of ants. The group provides a breakdown of revenue by sector, not by cost or profit level. However, it can be speculated that due to the rapid growth of ants gross profit and operating profit, its digital financial business, including online credit and wealth management, is profitable.
In addition, the instability of ants income has been ignored. In its offering documents, ants disclosed the three years (rather than quarters) up to 2019. This kind of disclosure may cover up the influence of government policies on it. From the end of 2017, for example, ant has had to significantly change its online credit business to comply with government policies that strictly regulate debt.
MasterCard is a New York based payment company. Its core products are credit card, debit card and prepaid card, as well as innovative multi-functional platform, providing services to consumers, governments and merchants around the world. The company currently has a market value of $348.029 billion on the New York Stock Exchange. PayPal is an online payment service provider headquartered in San Jose, California, providing transfer, payment or collection services. The company currently has a market value of $237.825 billion on the Nasdaq Stock Exchange.
Source: Qiao JunJing, editor in charge of Netease science and Technology Report_ NBJ11279