President Donald Trump recently signed an executive order banning US transactions with several Chinese apps including Ant Group's Alipay mobile app, and Tencent's WeChat Pay and QQ Wallet.
The order indirectly affects Alibaba given that Alibaba owns around a third of Ant Group.
Although the Commerce Department has 45 days after the executive order was signed to act on the ban, the branch plans to act in terms of identifying barred transactions before January 20, when Trump formally transfers power to current President elect Joe Biden.
According to a recent Fox business report released January 6, Joe Biden's camp has declined to comment on the order. Ant Group has also reportedly declined to comment.
President Trump has previously targeted Chinese apps like TikTok before with a ban. Due to various rulings, however, Trump's TikTok ban efforts have been blocked in courts based on largely freedom of speech grounds.
Given that freedom of speech could potentially be less of an issue with an Alipay ban, the Trump administration thinks that the executive order will run into less judicial checks.
Effect on Alipay
Alipay isn’t very big in the US. According to the firm SensorTower, Alipay was downloaded just 207,000 times in the US in 2020 via Google Play and Apple's app store.
Alipay isn’t as big in the US because there are a lot of existing mobile payment apps already. It’s also hard to gain market share in the payments business against entrenched competitors with network effects.
Given that it’s not very big in the US and that it wasn’t likely to gain a lot of market share given the tough competition, the ban won’t affect Ant Group that much.
Given that it won’t affect Ant Group that much, the executive order won’t affect Alibaba that much either.
While Trump’s executive order affects Ant Group and Alibaba, the two companies are much more affected by Chinese regulators. Most of Ant Group and Alibaba’s customers are in China and both companies derive most of their value from the Chinese market, something that Chinese regulators oversee.
On the Chinese regulatory front, Ant Group and Alibaba haven’t done well recently. In late October last year, co-founder Jack Ma drew the ire of regulators after he criticized Chinese regulators in a Shanghai Bund Summit speech.
As a result of the speech, Chinese regulators took the matter up with President Xi Jinping who then halted Ant Group’s IPO. Ant Group has since faced more regulation as a result. Due to more regulation, many analysts think Ant Group is worth a lot less than before.
Alibaba has also run into regulatory trouble after regulators launched an antitrust investigation on it.
New regulations in both the US and China are definitely headwinds for Alibaba and Ant Group.
As for when the regulations cease to be headwinds, it’s not clear. That’s something that the government controls and something that the market reacts to.
Given their existing huge customer bases, technology, employee base, and market shares of attractive markets, both companies have a lot of value.
If Ant Group and Alibaba can get into regulator’s good graces again, Alibaba stock has the potential to do better given that value.