Is Tencent using strategic investments to stymy U.S. tech giants?
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Is Tencent using strategic investments to stymy U.S. tech giants?

Tencent’s had a year filled with interesting acquisitions that have more or less flown under the radar. These include taking a 5% stake in Tesla, a 10% stake in Snap, an investment in Essential Products, and (according to CNBC) “a 10% stock swap with Spotify”. With the exception of social media site Snap, none of these companies are involved in Tencent’s core businesses. So what gives? According to some observers, the Chinese internet giant could be trying to surround its U.S. peers with “Trojan horse investments”.

Tencent’s share price has risen by 105% so far this year

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SOURCE: Yahoo Finance

The common thread with these companies seems to be that they’re positioned against companies like Facebook, Apple, Amazon and Google. CNBC describes Tencent as a longtime “frenemy” of these firms – when it pays for both sides to collaborate, they will. Otherwise, they are in the business of out-disrupting one another.

Tencent’s relationship with Amazon is a great example of this dynamic. The latter company helped back Tencent’s investment in Essential’s new phone, and Tencent’s popular League of Legends game is big business on Amazon-owned Twitch. At the same time, Tencent was happy to launch a U.S. competitor to Amazon Web Services cloud computing business.

Looking at Tencent’s acquisitions from this perspective, it’s easy to conclude that the company may be mounting challenges to the big boys of U.S. tech. Tesla’s car business could easily be a player against the autonomous cars being made by Alphabet and Apple. Spotify is a rival against Amazon Music and Apple Music. Snap is positioned against Facebook (and don’t forget Tencent’s WeChat – a powerful hurdle to any social media messenger in China that Apple and Facebook presumably will, one day, have to compete against directly). Meanwhile, Essential makes phones – so do Apple and Google.

CNBC describes Tencent as a “silent threat” to big U.S. tech firms, and while the companies it’s investing in might struggle to compete against those companies for now, big checks from a Chinese backer could change the game.

Disclosure

Dominion holds Tencent in its Global Trends Managed Fund.


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