Alibaba Group Holding Ltd (NYSE:BABA) has a big year ahead with the IPO of its finance arm, Ant Financial. Currently, Ant Financial’s payment service, Alipay, is baked into Alibaba stock, not reflecting its true value. We believe that as the IPO gets closer, and more information is disclosed, the value of Ant Financial will drive BABA stock significantly higher. Following the IPO, Alibaba Group Holding will still own the majority in Ant Financial, and because the two services intertwine, BABA is likely to partake in Alipay earnings following the IPO.
According to CNBC, Ant Financial is worth $60 billion, or 25% of Alibaba Group Holding. In other words, Ant Financial is 20% more valuable than PayPal Holdings Inc (NASDAQ:PYPL). The big difference is that Alipay has 450 million active users and processes 170 million transactions per day. On the other hand, PayPal has 192 million active customers and processed 1.5 billion transactions in its last quarter. That means that Alipay handles more transactions in two weeks than PayPal does in a three-month span.
Another huge difference is the platforms that both Alipay and PayPal are tied too. Alipay piggybacks the double digit gross merchandise volume growth of Alibaba’s e-commerce properties, whereas 75% of PayPal’s EBITDA (and likely traffic) comes from the near zero growth eBay (NASDAQ:EBAY).
Clearly, Ant Financial is worth a hell of a lot more than a 20% premium to PayPal. We believe that as investment bankers, institutional investors, and retail investors alike start to dissect these numbers, the valuation for Ant Financial will soar. In fact, we believe it could IPO with a valuation near $120 billion! If so, the effect on BABA stock would be tremendous, much like when Amazon.com decided to start showing AWS revenue/profits and the asset’s true value was unveiled.
BNL Finance upgrades Alibaba stock
Right now, the market is discounting Alipay, and BABA stock, but as the IPO gets close it is very possible than an already undervalued Alibaba stock gets a big boost higher sentiment and Alipay. Furthermore, if Alibaba stock is already undervalued relative to its 30% growth and 22x FY2017 EPS, I think it is very possible that these collective catalysts could push BABA stock up 50%.
BNL Finance already had a “Buy” rating with a score of 89. Since initiating coverage, BABA stock is up by 34% according to the BNL Stock Scores platform.