Alibaba to Buy 33 Percent Stake in Ant Financial, Paving Way for IPO

HANGZHOU, China — Alibaba Group Holding Ltd. agreed to buy a 33 percent stake in Ant Financial, a key step in clearing the way for an initial public offering of the Chinese payments giant.

China’s biggest e-commerce operator will buy new shares in Ant in exchange for certain intellectual property rights, the company said Thursday. There will be no cash impact, it added. Alibaba also raised its annual sales forecast after posting earnings that topped estimates.

Buying a stake in Ant would be Alibaba's first investment in its financial affiliate since the Alipay business was controversially spun out from the e-commerce operator by founder Jack Ma in 2011. The two companies reached a profit-sharing agreement in 2014 ahead of Alibaba's own IPO, an arrangement that will end with the equity purchase.

“This acquisition of Ant Financial’s stake could be a preparation for its potential IPO,” said Steven Zhu, a Shanghai-based analyst with Pacific Epoch. “Alibaba was able to improve revenue growth because performance-based ads were able to generate better revenue on mobile apps and its catered user pages drove more sales.”

Ant Financial, known formally as Zhejiang Ant Small & Micro Financial Services Group Co., operates Alipay as well as money market funds and credit scoring. It's based in Hangzhou, China, the same hometown as Alibaba.

The internet finance behemoth is one of Ma’s most closely watched assets and was valued at $74.5 billion in 2016 by CLSA. Ant Financial almost doubled earnings in fiscal 2017 as it expanded its footprint in wealth management and overseas markets. The deal will likely be subject to regulatory approval.

Alibaba said revenue in the 12 months ending March will rise 55 to 56 percent, up from a range of 49 to 53 percent previously. Third-quarter revenue rose 56 percent to 83.03 billion yuan ($13.2 billion), topping estimates for 79.7 billion yuan. Adjusted earnings-per-share were 10.61 yuan, surpassed projections for 10.53 yuan.

The e-commerce giant’s revenue growth has been underpinned by Chinese consumer strength and investments to link its business to traditional retailers. Billionaire Ma’s splurged $13 billion since 2015 in brick and mortar companies--shaking up supermarkets and department stores, equipping them with management systems, and investing billions into artificial intelligence and cloud computing.

"Reacceleration in overall e-commerce growth shows the early benefits of Alibaba’s new retail strategy," Karen Chan, an analyst at Jefferies Group LLC, wrote in a research report. Alibaba will "extend its last-mile reach to the 60 percent offline consumer population."

Shares of Alibaba climbed 2.3 percent in New York on Wednesday. The stock has gained 18.5 percent this year compared with a 4.4 percent gain for the NYSE Composite Index.

By Lulu Yilun Chen.