Tencent buys 12% stake in Snap
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Tencent buys 12% stake in Snap

Chinese technology giant Tencent has bought a 12% stake in Snapchat owner Snap. This news bodes well for Snap, which has struggled to hold its own against Facebook – it’s an inflow of money, but also of experience. Few companies have Tencent’s expertise when it comes to transforming apps into moneymakers with the addition of newsfeeds, games, advertising and more. For Tencent, of course, the appeal is no less obvious: the company is looking to expand outside its native China, and Snapchat might just be the way to do it.

Tencent’s share price has appreciated an incredible 103% year to date!

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SOURCE: Yahoo Finance

Daniel Ives, head of research at GBH Insights, explained how the companies might work together: “It’s an offensive move for Tencent to eventually use the Snapchat platform to augment its existing consumer service in China and globally. These two companies and management teams know each other well with minimal overlap. It’s an opportunity for Tencent to also help Snapchat get through this transition period with minimal speed bumps.”

Snap has had a turbulent few days. A disappointing third-quarter earnings report sent its share price down by 22%. Just a few hours later, Tencent announced its purchase, and Snap’s share price rocketed back up by 34%. Yesterday, it fell by 11%. But there is little doubt that Snap – which can’t offer its temporary messaging service in China due to government restrictions – is getting a valuable partner in Tencent.

According to the filing, Tencent president Martin Lau is eager to get “sharing ideas and experiences” between the company. For its part, Snap said: “We have long been inspired by the creativity and entrepreneurial spirit of Tencent and we are grateful to continue our longstanding and productive relationship that began over four years ago.”

Disclosure

Dominion holds Tencent in its Global Trends Managed Fund. 


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