Alibaba’s fintech affiliate Ant Financial posted strong profits in the second quarter, contributing around RMB 1.63 billion ($237 million) in royalty and software technology services fees to the Alibaba as part of their profit-sharing arrangement, according to the e-commerce giant’s earnings report released on Thursday.
Why it matters: Despite macroeconomic slowdown and recent mobile payment regulation that squeezed its revenue stream, Ant Financial was able to grow.
- The company continued to expand its wealth management and other financial product offerings in the domestic market as grow its international presence. It operates one of China’s most used mobile payment app, Alipay, which has been on a global expansion spree in recent years.
- Last year, Ant Financial was running at a loss in two quarters partly due to ramped-up spending on investments and user acquisition.
Details: Ant Financial’s payments to Alibaba in the second quarter tripled from the quarter prior, and was the highest in almost two years.
- Ant Financial posted RMB 4.3 billion ($611 million) profit in the second quarter, according to Bloomberg, calculated based on the arrangement that stipulates Ant Financial to pay 37.5% of its pre-tax profit to Alibaba as royalty payments and software technology services fees.
- Despite profit growth, Ant Financial’s contribution to Alibaba’s operating income remains minimal, around 7%.
Context: China’s fintech market is entering a new phase of steady growth, a contrast from the past fueled by neck-and-neck competition with arch-rival Tencent, the operator of WeChat Pay.
- However, China’s slowing economy and continued tightening regulations to reduce financial risks might create some hurdles for the fintech firm.
- Earlier this year, the government started enforcing a new policy that prevented third-party payment platforms to earn interest from clients’ money by depositing it into bank accounts.
- Alibaba is expected to take a 33% stake in Ant Financial and abandon the profit-sharing arrangement. However, the deal has been pending since last February.