Alibaba shares dip after 56% revenue increase, deal for stake in Ant Financial

The Chinese e-commerce giant Alibaba has acquired a one-third stake in Ant Financial, an affiliate company that runs its Alipay online payment service.

No cash will be involved in the deal, as Alibaba will get newly-issued equity from Ant Financial in exchange for "certain intellectual property rights" Alibaba owns that are exclusively related to Ant Financial, the companies said Thursday.

The deal will end the current revenue sharing agreement between the two Hangzhou, China-based companies in which Ant Financial pays royalty and technology service fees equal to 37.5% of its pre-tax profits to Alibaba. Ant Financial was formed in 2014, out of the original Alipay company, which Alibaba executive chairman Jack Ma spun off in 2011.

Valued at more than $74 billion in 2016, Ant Financial is expected to launch a public offering soon, according to Bloomberg.  "Importantly, an equity
stake in Ant Financial enables Alibaba and our shareholders to participate in the future growth of the financial technology sector, as well as the benefits of user growth and improved customer experience,” said Daniel Zhang, CEO of Alibaba Group Holding Ltd., in a statement.

Last month, the U.S. government blocked Ant Financial's attempt to acquire Dallas-based Moneygram International Inc., a deal that would have helped solidify a financial presence in the U.S. for Ma and Alibaba. The companies could not get approval from the Committee on Foreign Investment in the United States, a Treasury Department-run multi-agency panel that evaluates foreign acquisitions of U.S. companies for national security concerns.

Shares of Alibaba Group Holding (BABA), which is listed on the New York Stock Exchange, were down 2.6% to $199.02 in early trading Thursday after the company reported a 56% increase in revenue for the quarter ending Dec. 31, 2017.

Revenue of $12.8 billion and net income of $3.8 billion surpassed expectations of $12.4 billion and $3.4 billion, based on analysts polled by S&P Global Market Intelligence.

Record-breaking Singles Day (Nov. 11) sales boosted revenue. Singles Day spending on Alipay rose 39% from the previous year to $25.9 billion. Alibaba increased its fiscal year revenue increase to 55%-to-56% up from its previous forecast of 53%.

Follow Paste BN reporter Mike Snider on Twitter: @MikeSnider.