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Comment by itchyjunk | Hacker News Reader

>>>In early June, news broke that Ant Financial, an electronic payments service company affiliated with Alibaba, had raised a staggering $14 billion in what’s technically a Series C round. To date, it’s the largest venture funding round in history. Led by Temasek Holdings and GIC (a Singaporean sovereign wealth fund), the round reportedly values Ant Financial at $150 billion. For perspective, that’s roughly twice Uber’s valuation and within spitting distance of Amazon founder Jeff Bezos’s current net worth.

Hmmmm, just shows how little I understand about evaluation and/or VC because this seems crazy to me.

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Ant Financial is handling ~$4 trillion in payment processing annually. They have about half of the Chinese mobile payments market in Alipay (WeChat has something like 35-40%). They've moved into numerous financial segments.

They had about $9 billion in revenue in 2017, and are nearing a billion users.

The $150b valuation is rich, however it's about 1/3 to 1/4 the PE ratio that Amazon and Netflix are being given currently. At $150b it's trading for ~85 times net profit.

The business is wildly profitable as you might expect. In terms of size, consider how big Visa, Mastercard, PayPal, etc. are.

Visa now has a $294 billion market cap. That's based on $18b in sales and extremely high margins. Mastercard is worth $204 billion. PayPal is worth $100 billion; Ant Financial will be larger than PayPal in terms of sales within 12-24 months (and is comparable now in profit).

The big risk regarding Ant Financial, is that the Chinese authorities are afraid of it and have begun boxing it in with controls. As one might expect, they don't like the idea of a single corporation controlling so much of China's financial flow (unless it's very firmly under the boot of the government).

Why would a company with such massive revenue need to bring in so much external capital? Wouldn't the current stakeholders be better off keeping more of the pie?

Keep in mind $9 billion in sales is not quite massive revenue in the pool that Ant is now swimming. Their financial footing is not nearly so large as their scale of processing, they've only begun generating meaningful profit in the last year or two. Google is at $110 billion in sales, JP Morgan is at $94 billion, those are massive.

The dilution of current stakeholders is intentional. I believe it was required by Chinese authorities (my speculation).

I've been following Ant / Alipay with curiosity ever since Jack Ma stole it from Softbank and Yahoo (along with the rest of Alibaba shareholders). There have been a lot of bizarre things done with the company over time. Jack Ma for example gave himself the large majority share of ownership in the spun off entity, and then proceeded to voluntarily debase his ownership dramatically with no compensation. And now, having screwed Alibaba over with the Ant Financial spin out, Alibaba was recently forced by Jack Ma to buy a chunk of Ant again (33% of it).

My guess on some of these choices, is that it's about nationalism (taking Ant away from foreign owners of Alibaba) and the requirement by Chinese authorities that Jack Ma not have too much power (and that Ant's ownership not be so concentrated in general). If he had held onto the stolen position in Ant Financial + his stake in Alibaba, he'd be closing in on the world's richest person title (~$100b in Ant, ~$30b in Alibaba + cash). That's a spotlight you do not want right now if you're under Xi. I'm certain the Chinese authorities do not want one person owning the majority control of something like Ant Financial, given its size and importance to the economy. There's no other rational reason for Ma to have voluntarily given up so much ownership in Ant, he's shrinking himself as a target (plausibly he was given no choice; I suspect it was always the plan from the moment Ant was taken from Alibaba).

Or put it simply: Ant may end up being worth several hundred billion dollars. Imagine Jack Ma owning 2/3 of something worth $400 billion. Now picture the target on his back, that would go along with such power and control over the Chinese economy. It'd be Jack Ma vs Xi, and Jack Ma would lose; a very dangerous game to play if you're a simple civilian. Better to stay smaller and get to continue doing what you want to do (operate Alibaba and Ant), by giving up some power, ownership, and not being in any way perceived as a meaningful threat to the authorities and their absolute control.

>Or put it simply: Ant may end up being worth several hundred billion dollars. Imagine Jack Ma owning 2/3 of something worth $400 billion. Now picture the target on his back, that would go along with such power and control over the Chinese economy. It'd be Jack Ma vs Xi, and Jack Ma would lose; a very dangerous game to play if you're a simple civilian. Better to stay smaller and get to continue doing what you want to do (operate Alibaba and Ant), by giving up some power, ownership, and not being in any way perceived as a meaningful threat to the authorities and their absolute control.

For a Westerner, you seem to be rather perceptive of such things. The wording for "instant billionaires" among CCP members is "the new class."

It doesn't take long to guess that they freaking hate and loath anybody passing as a successful person and Jack Ma is the prime example of one. Just how full of bile they are.

>JP Morgan is at $94 billion

By the way, their C-Suite has just been to China to attend a humiliating "Handshaking Ceremony" with some "serious official"

Ant Financial has been involved in some very dodgy crowd funding schemes (though it is definitely the least dodgy of the bunch), the government has a right to be weary of them.

Any source? I'm genuinely interested

Ant is effectively a bank, and a huge one at that. The showstopper there is its staggeringly low capital ratio of ~0.5% - this is not a typo.

If it were to be classified as a bank, it will have to be instantaneously closed down for violating just every banking regulation China has.

And this is the true contention point, if they were to close Ant or arrest Ma with his Robin Hood image, it will be extremely unpopular.

One of the reasons US-based startups grow so quickly is that the ones with traction here tap into a (relatively) homogeneous 300+ million market. A Chinese company with similar market share potential has tapped into about 4X that market. Growth rate is much faster in such a market, as opposed to global growth that has to deal with diverse sources of friction (e.g. Uber's challenges in London, Paris, etc. vs in the US).

I'm curious about how much of the considerable Chinese population is actually available to market tech products to. Something tells me comparing the populations straight up is misleading.

We did ethnographic research on smartphone usage in China back when I used to work for Intel, back in 2007. Even then, smartphone usage had penetrated the least educated segments. Blue-collar workers living six to a room were heavy users of smartphones, some were heavy gamers. The percentage of their income they spent on technology and entertainment was more than in the West. The growth rate was also amazing.

Vast majority of Chinese population is available to at least parts of the tech products now. WeChat/Alipay is available virtually anywhere.

It is true that the development in China is very unbalanced, and habits of different groups of people varies a lot. There are also abundant number of tech products targeting each group of people. For example, Taobao has been very popular in large cities for many years, you'd think they've saturated online shopping market. A new startup Pinduoduo launched in 2015, targeting online shopping market in smaller cities and countrysides, managed to acquire hundreds of millions of users there, and they just filed for IPO a few days ago.

just one recent case

https://news.ycombinator.com/item?id=15675118

All of the $18B transaction was handled by Ant Financial.

The penetration of smartphone in China is almost 100%, higher probably than US.

> Something tells me comparing the populations straight up is misleading.

Totally agree: once chosen by the Communist Party, a company is likely to enjoy state-sanctioned monopoly status. Not only will they have access to the entire population, the population may have no access to any other service provider in the same sector.

The reality is, three major players Baidu, Alibaba, Tencent are competing with each other in almost every front, and also competing with tons of new challenges like Meituan, Bytedance, etc. The abundance and variety of small startups and their competition is nothing unlike what's happening in silicon valley.

China is 4x larger users-wise, but what about revenue/gdp?

It's the momentum that matters not the absolute numbers.

Still much lower but going up.

American wages are overall flat for 40 years.

Real average wages are up 25% since 1990.

https://www.ssa.gov/oact/cola/central.html

China is going cashless -mobile payments are increasingly the norm. There are two main ways to pay with your phone wechat pay and Alipay(run by ant financial).

It will potentially handle a huge percentage of ALL payments in a country as big as china.Maybe 150bn isn't such a crazy valuation

How rapidly are cashless transactions spreading in China? When I was there back in 2011-2012 everything was exclusively cash-only. I'd be interested to learn the rate of change in recent years.

I live in SF and go back to China about once a year, and every time I go back, I can always find tons of new stuff. For my hometown, the change from exclusively cash-only to cashless happened in less than 2 years.

Extremely fast. I agree with ~2011 being cash only, but the last time we were back (last year?), there was tons of wechat pay usage in restaurants, convenience stores, etc.

https://www.wsj.com/articles/chinas-mobile-payment-boom-chan...

What surprised me was the proliferation of Alipay in premium outlets near touristy areas in SF.

>How rapidly are cashless transactions spreading in China?

Basically overnight. Reason? 1. Alibaba and Tencent basically paying cash for people using their system; 2. POS terminal charges for them are near nil in comparison to rapacious rents Visa/MC processing banks were demanding just a year ago.

It seems reliance on electronic pay is a big vulnerability, whenever there's a hickup everything stops. You can make the systems work reasonably well but there will be an outage eventually. In any kind of cyber battle you'd think this would be a huge problem. In the US I noticed most young people also carry little cash, while I'm often paying with cash.

I know in China they also like ubiquitous tracking of people, and maybe the us govt would like that too.

I was in China around then too, and I have given up using that as a reference frame for China today.

Faster than square, stripe, and venmo did in the US. You can very nearly expect to be completely cashless, including Western credit/debot cards. You'll even see panhandlers with a qr code in front of them.

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