First Data Corporation (NYSE: FDC) just became a big player in the mobile-payments business.
It has become the first US payment processor to accept Ant Financial's highly successful Alipay mobile wallet, Bloomberg Technology reported. First Data will give four million American merchants access to Alipay through its Clover payment deices.
This is a huge deal because there are 400 million Alipay users in February 2017, Empresa Journal reported. Those users made 175 transactions a day as of August 2016. That translated into a payment volume of $1.9 trillion in 2015.
The deal might translate into an automatic source of revenue because around three million Chinese visit the US every year, and 350,000 Chinese students are studying at American universities, Quartz reported. To those numbers we can add the 2.1 million Chinese immigrants in the U.S. and all the Americans who have become familiarized with Alipay while visiting the People's Republic.
Clover Plus Alipay equals Revenue Growth
Working with First Data makes Ant a major player in U.S. mobile wallets because Clover's retail footprint is almost as big as that of Apple Pay. Apple Pay is accepted by around 4.5 million U.S. merchants.
Alipay also gets access to all of Ant's resources. Ant is one of the world's most valuable unicorns (pre-IPO companies) some analysts have estimated its value at $75 billion. Alipay alone has an estimated value of $50 billion according to CSLA Hong Kong Analyst Elinor Leung.
Beyond that Alipay uses the QR (quick read) code technology to communicate with cash registers. QR Code apps approve a payment by scanning a digital bar code similar to a Group On coupon symbol. That might be more secure than Apple Pay's NFC (near field communications) tech which sends a wireless signal to a cash register.
Intriguingly America's largest retailer; Walmart (NYSE: WMT) refuses to accept Apple Pay but has launched its own payment solution Walmart Pay; which uses QR code technology. Walmart is also planning accept another QR code based solution Chase Pay.
That means Alipay might get into Walmart which operates 4,672 stores in the United States. If Walmart starts taking Alipay, it might become America's most popular mobile wallet which would translate into a lot of potential business for First Data. Having a successful payment app can lead to fantastic ecosystem growth; Tim Cook recently revealed that Apple Pay's volume of payment transactions grew by 450% in 2016, without Walmart.
Is First Data Making Money?
Okay so First Data's future looks real bright but is it making money now? The answer is finally yes, after a long run of losses.
First Data finally started making this year after over straight years of reported losses. It reported a net income of $420 million in December 2016, that was the first it had reported as recently as September 2016 First Data reported a loss of -$989 million.
What's truly impressive is that First Data's net income grew by $1.90 billion; nearly $2 billion, during 2016. First Data entered the year with a loss of -$1.48 billion in December 2016, and finished with $420 million in net income. That net income has continued to grow rising to $512 million in March 2017.
All that impressive income growth occurred without Ant Financial or Alipay. That makes the Ant Financial deal all the more intriguing.
First Data's Business is Growing
Net income is not the only thing growing at First Data, revenues have been steadily increasing for quite a while. FDC added $130 million in new revenue over the course of 2016.
The company began the year with $11.45 billion in revenues in December 2015 and finished with $11.58 billion 12 months later. The revenue growth has continued, First Data reported $11.61 billion in revenues on March 31, 2017, ycharts data indicates.
Skeptics will ask if this revenue is translating into cash. The answer to that provided by the earnings report for first quarter 2017 is yes.
The payment processor is generating more cash according to these numbers:
· A free cash flow of $304 million.
· Assets of $35.02 billion.
· Cash and short-term investments of $503 million.
· $2.146 billion in cash from operations.
Cash from operations at First Data increased dramatically in 2016, rising by $1.315 billion. The company began the year with $795 million in cash from operations; that grew to $2.11 billion in December 2016. That number continued to grow again to $2.146 billion in March 2017.
Is First Data a Good Investment?
All of this indicates a growing business that's about to get a lot better. First Data might just be one of the best values in Fintech, because of its low share price; $16.24 on May 12, 2017.
It is also a pretty good investment, there's dividend at First Data but shareholders were rewarded with a return on equity of 50.76% on March 31, 2017. If you are looking for a low-cost play in Fintech that has the potential for a lot of long term growth, First Data would certainly be it.
Those waiting for an Ant Financial IPO might consider First Data. It is being traded right now, it's growing fast and it makes money that makes First Data value in fintech.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.