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We're about to witness the biggest IPO of all time. And it's courtesy of a venture capitalist who once held the same record.
Today, we're talking about whether Ant Group stock is a buy after its IPO.
Jack Ma, co-founder and former executive chair of Alibaba Group Holdings Ltd. (NYSE: BABA) expects to take Ant Group public to the tune of $34.5 billion next month. That would beat the 2014 Alibaba IPO, which raised $25 billion.
It's also poised to beat the current largest IPO of all time, Saudi Aramco, which raised $29 billion when it first sold its shares.
Alibaba is one of those IPOs that most investors who bought early can't regret for a second. The e-commerce giant is up 240% since it first began trading, from $90 to $306. It's even up around 40% on the year through the COVID-19 pandemic, as consumers have piled into online shopping under lockdowns.
Now, the question is whether Ant Group can prove Jack Ma's genius a second time.
Here we're going to talk about why investors are excited about this stock, and then we'll cover whether or not there's an opportunity for you to profit from Ant Group stock...
What Is Ant Group?
Ant Group is actually the financial services arm of Alibaba. Ant expects to be valued at $380 billion market when it debuts its 1.67 billion public shares, which would make it one of the largest fintech companies in the world.
Alipay, China's largest digital payment platform, is owned by Ant Group. This is something of a PayPal or Apple Pay equivalent in China. The only difference is PayPal serves about 22 million merchants, while Alipay serves 80 million.
A reasonable analogy can be drawn between Amazon.com Inc. (NASDAQ: AMZN) and Alibaba here as well. While Amazon has around 95 million prime memberships and 300 million active users, Alibaba has 726 million active users - more than the entire U.S. population of 328 million.
WARNING: 22 million shares of this stock trade hands every day - make sure you're nowhere near it. Click here...
China's growing population of 1.3 billion is key to these differences. It points to a broader, deeper consumer base that benefits from Alibaba's services and connected services like Alipay.
The company has ambitions to spread outside of Asia as well. It's already shown promise in Europe, which has tripled the merchants taking Alipay.
The only thing that would get in the way of Alipay's worldwide success is a potential trade conflict between the United States and China. The U.S. has already placed restrictions on various Chinese companies over security concerns. Investors were even concerned that Alibaba might be delisted at some point in the future, which would cut into all those gains.
The United States has considered restrictions on Alibaba as well as Alipay from Ant Group. Lucky for Alibaba investors, however, BABA is not one of the Chinese stocks likely to be delisted. It's a huge company that's likely to meet the disclosure requirements as they pop up.
But is Ant Group different?
Can You Invest in Ant Group?
Unlike Alibaba, Ant Group will not be trading via depository receipts on the New York Stock Exchange just yet. It will only trade on the Shanghai and Hong Kong exchanges. So it will not be easily accessible to American retail investors.
There are, however, ways to get a stake in this company when it goes public...
A broker with access to the international exchange can potentially get you shares. For example, Charles Schwab and Fidelity both allow investors to trade on the Hong Kong exchange. But trading stocks on a foreign exchange comes with a whole new set of obstacles, including managing exchange rates and foreign tax implications.
It could still be tough for you to snatch up IPO shares if you are not an accredited investor too. But once Ant Group stock hits the open market and you have a broker that offers international trading, you can ask about buying shares.
That said, exposure would be limited in any case that isn't a direct investment in the stock. An ETF is heavily diversified, and you would not get to determine how much of your portfolio is allocated to Ant Group stock specifically.
Lastly, you can wait as long as it would take for Ant Group stock to offer American Depository Receipts (ADRs).
If trade tensions between the United States and China simmer down, these could hit the NYSE and trade similar to Alibaba. If not, they could still be bought via over-the-counter markets.
We still have to wait and see what happens with U.S. regulation of these companies. Alibaba was a boon for investors in Chinese stocks. Maybe if Ant Group displays a similar level of transparency, it will be purchasable on U.S. exchanges.
Now, the big question...
Is Ant Group Stock a Buy After the IPO?
Looking at the success of Alibaba makes Ant Group stock exciting for many investors. We've put together criteria that may help you decide when to invest in an IPO - have a look right here.
With IPOs, the best thing is often to watch how the stock performs in the months following an IPO.
If that was your approach to Alibaba stock, you would have been disappointed at missing 240% growth. Other stocks might not perform so well, like Lyft Inc. (NASDAQ: LYFT), which has lost over 70% of its price since IPO.
Some stocks are driven by hype and come crashing down after IPO. Others are worthy of that hype.
What's good about Ant Group is that the decision is mostly made for American investors. Unless you're willing to jump through hoops, you probably won't be scooping up shares of Ant Group anytime soon.
If your broker gives you the option of international trading, you still face the risk of owning a Chinese company on the U.S. government's chopping block.
But judging from the success of Alibaba alone, you could have some hope for Ant Group.
Your other options for investing in Ant Group would be sneaky backdoor plays.
You can invest in Alibaba, which has a 33% stake in the company. If you're not holding shares of the stock yourself, of course, your investment in Ant will depend on whatever Alibaba decides to do with its stake in the future.
Similarly, you could invest in an ETF that has shares of Ant Group. Funds like Renaissance Capital's International IPO ETF (NYSEArca: IPOS) have big Chinese portfolios and would likely buy up shares of Ant Group early.
Another option for that is SPDR S&P China ETF (NYSEArca: GXC), which is not specifically dedicated to IPOs.
Three Stocks We Like Even More Than Ant Group
Our Shah Gilani just named three stocks he says are "screaming buys" right now.
All three are trading at a discount... are under-the-radar companies most people haven't even heard of... and have massive tailwinds with the potential to make their prices skyrocket.
Go here to watch Shah give you the company names, tickers, and price targets for three stocks that belong in EVERY portfolio.
About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.