Alibaba has 1 monster hidden asset


Ali Baba (BABA -5.00%) has taken steps that could revive an IPO of its Ant Group stake. Its previous IPO attempt for the company brought in a huge valuation. Although its IPO was taken off the table, Alibaba still has a significant stake in the valuable company. Here is what is happening now.

hidden gem

Ant Group operates a digital payment app under the Alipay brand. The company was founded by Jack Ma, who also founded Alibaba. Alipay’s 1.3 billion users transact on Alibaba’s e-commerce sites and anywhere mobile payments are accepted. The app also allows users to access its money market fund, buy it now, pay later, and online banking. Alibaba owns 33% of the Ant Group.

Image source: Getty Images.

In 2020, Ant planned to go public as a standalone company, which would have valued the fast-growing company at more than $300 billion. At that time, Ant Group would have been bigger than American banks Wells Fargo and Goldman Sachs.

Unfortunately for Ant shareholders, the IPO was scrapped at the last minute by the Chinese government, which began enacting sweeping regulations on Chinese tech companies, like Ant, which provided financial services but did not were not regulated like financial institutions. Many Chinese stocks, including Alibaba, have begun to plummet. Alibaba shares have fallen from over $300 per share in October 2020 to their current price of around $90.

Recently, however, the People’s Bank of China accepted an application from Ant to form a financial holding company. Their acceptance of the application could indicate that Ant is now in compliance with regulations and could pave the way for another IPO attempt.

At the center of the controversy is former CEO and founder Ma. The charismatic figure owns 50.52% of Ant Group and a majority share of many other Alibaba subsidiaries. The Wall Street Journal reported that Ma planned to relinquish control of Ant Group. By doing so, regulators may no longer view Alibaba and Ant as having common control, and Chinese regulators may view an Ant Group IPO favorably.

Is Alibaba stock a buy right now?

If Ant Group is worth more than $300 billion, which it was valued at before its ill-fated IPO, Alibaba’s one-third stake would be worth around $100 billion. In addition to this, Alibaba’s core businesses include its popular e-commerce platform and its fast-growing cloud business, which holds 5% of the global cloud market.

In total, Alibaba made net income of $9.7 billion in its fiscal year ending March 31, 2022. So, using its five-year average P/E ratio of 32 times as an approximation, Alibaba should be worth 310 billions of dollars. Adding the company’s $100 billion stake in Ant Group would bring Alibaba’s total value to around $410 billion. Alibaba’s current market capitalization is just $275 billion, which could represent a significant shareholder value opportunity.

Chinese fintech regulations were one of the causes of the share price decimation, but it would seem that these issues are at the root of the company. Shareholders are now grappling with a possible delisting of Alibaba shares from US stock exchanges. The problem with delisting is that many large institutional investment firms cannot hold shares of companies that are not listed on a major stock exchange.

Many of these investors may already be out of stock, presenting an opportunity for individual investors able to hold stocks if they turn to over-the-counter markets or foreign exchanges. An Ant Group IPO could be a catalyst for the market to recognize the hidden value of Alibaba’s stock, potentially preventing it from being delisted.

Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. BJ Cook has no position in the stocks mentioned. The Motley Fool fills positions and recommends Goldman Sachs. The Motley Fool has a disclosure policy.


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