China's e-commerce giant Alibaba Group Holding Ltd. (BABA) announced Thursday morning that the company will acquire 33% of Ant Financial, the electronic payment firm Alibaba spun-out in 2011 just ahead of its initial public offering (IPO). The acquisition clears the way for Ant Financial's own IPO.
Alibaba will exchange certain intellectual property rights it owns for newly issued shares of the payments firm. No cash is involved in the transaction. The profit-sharing agreement between the two companies will end when the transaction closes.
Ant Financial operates the Alipay electronic payment system and was recently valued at nearly $75 billion. The company also manages various money market funds and a credit scoring operation.
Alibaba also reported fiscal third-quarter results this morning. The company posted revenue of $12.76 billion, up 56% year over year, and net income of $3.59 billion. Adjusted earnings per share (EPS) totaled $1.63. Analysts had estimate revenues of $12.68 billion and EPS of $1.67 for the quarter.
The company also reported a total of 515 million annual active consumers, up by 27 million in the trailing 12 months, and mobile monthly active users of 580 million, up by 31 million since the end of the prior quarter.
Regarding its investment in Ant Financial, Alibaba said:
During the quarter, Ant Financial successfully executed an aggressive user growth plan that resulted in substantial new user additions and increased user engagement. As a result of the user growth initiatives, in December 2017, Alipay Wallet's daily active users more than doubled on a year-over-year basis. We expect that Ant Financial will continue to invest to expand its market leadership in digital payment, develop new technologies for inclusive financial services, and accelerate its globalization strategy.
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Alibaba stock traded down about 5.5% at $193.06 in early trading Thursday morning. The stock closed at $204.29 on Wednesday after posting a new 52-week high of $206.20. The 12-month consensus price target on the stock was $217.19 before this morning's report.