Ant Group to Continue Operations Despite Regulatory Scrutiny

After months of regulatory scrutiny, Ant Group appears to be finally getting the green light from Beijing. This is good news for the Chinese tech sector, which has been under pressure recently. However, investors still need to be aware of the changed landscape in the industry.
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It seems very likely that both shares and earnings will be boosted by a less actively hostile central government and a recovering Chinese consumer sector in mid-2023. Although growth will still be slower than in the pre-crackdown days, the overall outlook is positive.
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There have been increasing signs that the regulatory crackdown on Ant and other Chinese internet companies could be coming to an end. The last-minute suspension of Ant's planned $34 billion initial public offering in late 2020 was one of the pivotal moments in the years-long crackdown. However, recent developments suggest that the Chinese government may be softening its stance on these companies. This could mean more lenient regulation and a more favorable business environment for Ant and other Chinese internet firms.
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Ant said over the weekend that Chinese billionaire Alibaba BABA 3.19% is worth watching.
Jack Ma, co-founder of Ant Group, is set to cede control of the company. In a speech given before the abrupt suspension of Ant's IPO in 2020, Ma criticized Chinese regulators for stifling innovation.
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Approximately one week before Ant announced Mr. Ma’s role change, the company’s consumer-finance unit received approval from China’s banking regulators to raise 10.5 billion yuan, the equivalent of $1.55 billion. New investors include a company backed by the local government of Hangzhou city, where Ant and Alibaba are based.
Ant says that there is no plan for an IPO at the moment and that the company is focusing on rectifying and optimizing its businesses. A new IPO probably wouldn’t come until after Ant receives its financial holding license, which will mean the company is regulated more like a bank. That will probably also mean that it needs to hold more reserve capital for its businesses—and that it will get more scrutiny from the regulators than it did before 2020, even if the company’s general relationship with the government improves.
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Growth is expected to be slower than previously anticipated, and its valuation lower than the $300 billion it was valued at in 2020. In comparison, Alibaba, which owns one-third of Ant, is currently valued at around $300 billion, after losing nearly two-thirds of its value since its late 2020 peak.
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Despite the recent news, investors are still optimistic about Alibaba's future. The stock is currently trading at 13 times forward earnings, which is lower than the five-year average of 23 times. This suggests that there is still potential for growth in the company.
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Alibaba's stock has gained 27% this year, thanks in part to China's easing of pandemic restrictions. With consumers spending more and small businesses thriving, the e-commerce giant is poised for continued growth. Last year's slowdown in China's economy caused Alibaba's first quarterly revenue decline since its 2014 New York listing.
Although Chinese internet tech companies will never return to the rapid growth days of the late 2010s, they should still be celebrated for emerging from the harshest phase of the regulatory crackdown with their core businesses still intact, if somewhat humbled.