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Ant Group's profit contribution to Alibaba falls for first time amid restructuring, regulatory pressure

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Ant Group, operator of popular Chinese online payment service Alipay, contributed less to Alibaba Group Holding's net profit in the June quarter than a year earlier, as regulatory pressure and economic headwinds hurt earnings.

Alibaba, which owns 33 per cent of Ant, made 3.72 billion yuan (US$555 million) in net profit from the fintech giant through equity method investments during the second quarter, down 17.3 per cent from 4.49 billion yuan in the same period last year.

This marks the first decline in Ant's contribution to Alibaba's net profit since the e-commerce giant acquired its stake in the fintech company and started to disclose the firm's contribution in its financial results in 2019.

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Alibaba, owner of the South China Morning Post, did not explain the reason behind the decline. Neither did Alibaba executives mention Ant during a post-earnings call with analysts on Thursday.

Ant Group, operator of Alipay, contributed less to Alibaba's net profit than a year earlier. Photo: Bloomberg alt=Ant Group, operator of Alipay, contributed less to Alibaba's net profit than a year earlier. Photo: Bloomberg>

Ant has been undergoing a lengthy state-guided restructuring process since its initial public offering was called off at the last minute in late 2020 under pressure from Beijing.

The company is currently seeking regulators' approval to transform into a financial holding group. It has been making efforts to meet regulatory requirements, including moves to distance itself from Alibaba.

Last week, Alibaba revealed that top executives from Ant, including chairman and chief executive Eric Jing Xiandong and chief technology officer Ni Xingjun, had resigned as Alibaba partners.

The two companies, which share Jack Ma as a common founder and once operated as a single entity, also agreed to terminate their data sharing agreement and would instead "negotiate the terms of data sharing arrangements on a case-by-case basis and as permitted by applicable laws and regulations".

The decline in Ant's income was not only a result of economic and regulatory pressure, but also a reflection of the company's increased investments in new businesses, said Wang Pengbo, a senior analyst at consultancy BoTong Analysys.

"The quarterly revenue was affected by Covid-19 and China's macro environment," Wang said. "As the implementation of the rectification measures goes deeper, Ant's separation from Alibaba, as well as other business adjustments, will also have a certain impact on income."

Ant's rising investments in cross-border payment services in overseas markets, as well as business-to-business services, have also led to more expenses, Wang added.

As Ant accelerates its separation from Alibaba, it remains to be seen how the fintech giant's income will be affected in the coming quarters.

Wang remains optimistic about Ant's financial future, given Alipay's key role in China's online payment market.

Chen Jia, a researcher at the International Monetary Institute at the Renmin University of China, said the loss of Alibaba's data resources and business support will have a negative impact on Ant in the short term, dampening core revenue and profit growth.

Still, the separation is a "must" if Ant wants to go public, Chen said. "In the long run, it has the positive impact of stabilising future revenue and sustaining profit growth."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

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