Thread by @frankinvesting

Thread/ $BABA news on the CCP breaking up Alipay lending business.

1/ The media and fintwit are again jumping on the news and pushing an overly negative spin on the impact of the CCP breaking up the Ant Group’s credit/lending business.

2/ it was announced that the CCP plans to break up Ant Group's Alipay and create a separate app for the loans business, the Financial Times reported.

3/ The plan will also result in Ant turning over the user data that underpins lending decisions to a new credit scoring joint-venture that will be partly state-owned.

4/ obviously this is negative news, but I think the actual impact on $BABA is fairly minimal. The impact for Ant Group is much more significant.

Let’s dive into some of the numbers…

5/ Alibaba own 1/3 of Ant Group, which conservatively has/had a value of $90-120B (USD). Which gives the $BABA stake a value of $30-40B.

6/ Ant Financial can be broken down into 4 key business parts; Payments, credit, insurance and asset management.

The part of Ant Group that is being affected is the credit business.

7/ the Ant Group credit business consists of two products;

Huabei - small instant loans at point of sale for consumers, using Alipay payments data.

Jiebei - larger consumer loans, also in real time.

8/ Out of the 4 key business segments, the credit business is the largest contributor of revenues for Ant Group. Total revenue LTM is $25-30B (estimate) of which about $10-15 comes from the credit business. So almost 50% of revenues.

9/ the credit business was once thought of as the gem within Ant Group, but it’s important to remember that previous crackdowns from the CCP requiring Ant to hold 30% of loan value on the balance sheet already stunted the growth of the credit business.

10/ this was one of the main reasons for analysts taking the IPO expected value from ~$300B down to ~$120B. The credit business was essentially already dead and contributing very little value to $BABA

11/ It of course was still very valuable to Ant Group.. but they still have payments, insurance & asset management that are all valuable in their own right.

12/ it’s important to remember that Alibaba’s $30-$40B stake in Ant is < 10% of their market cap & in my opinion < 5% of their intrinsic value.

13/ Even if we assume the credit/lending business is now solely owned by the CCP (it’s not, 1/3 stake will still be controlled by Ant). The remaining payments, insurance and assets managements businesses still produce ~$15B in revenues and conservatively could be worth $70-100B.

14/ So the value of Alibaba’s Ant Stake in my opinion is still around $20-35B conservatively.

Regardless, I think Ant stake essentially comes for free in a $BABA investment.

15/ I personally think the e-commerce business alone is worth more than the current market-cap and the future upside comes mostly from the Alibaba cloud business.

16/ so however you interpret this news for Ant Group, I think it barely puts a dent in the intrinsic value of $BABA.

Disclosure: long $BABA.