By Steven Russolillo and Wayne Ma
Tencent Holdings Ltd., the rapidly growing Chinese internet
giant, is proving a welcome source of capital to America's
fledgling companies, with Snap Inc. the latest beneficiary of its
deep pockets.
Tencent, slightly bigger than Berkshire Hathaway Inc. and best
known in China for its WeChat messaging app, recently purchased a a
12% stake in Snap, becoming one of its largest shareholders, Snap
revealed Wednesday.
Meanwhile, in Hong Kong, shares of a Tencent unit that operates
an online library soared in an initial public offering Wednesday
that gave the company, China Literature Ltd., a market value of
around $12 billion. And Thursday, Sogou, a search-engine company in
which Tencent owns a 44% stake, is expected to start trading in New
York, in a deal that could value it at as much as $5 billion, or
about 70 times its past earnings.
"Companies like Tencent are seen as unstoppable," said Joshua
Crabb, head of Asian equities at Old Mutual Global Investors.
Snap's announcement of the investment came on the heels of its
report of disappointing financial results for the third straight
quarter, sending its shares plunging. The revelation of Tencent's
investment did little to cushion investors' disappointment with the
Los Angeles company. Snap's shares on Wednesday lost 15% after
several analysts cut their price targets for the stock.
Founded almost two decades ago, Tencent stands with e-commerce
titan Alibaba Group Holding Ltd. and search giant Baidu Inc. as
three of China's biggest Internet companies. They have diversified
beyond their core businesses in recent years, placing big bets on
online video-streaming services and other entertainment plays.
Tencent is the largest videogame publisher in the world by
revenue but is best known in China for its WeChat and QQ messaging
and mobile-payment apps, which are installed on almost every PC and
smartphone there. Tencent said in an August filing that WeChat had
combined monthly active users of 962.8 million as of June 30, up
19% from a year ago.
Its shares have more than doubled this year as revenue and
profit have swelled. Tencent registered $122 billion in revenue
through the first six months of the year, up more than 60% from the
first half of 2016. For the full year analysts expect $274 billion
in revenue. By 2020, that projection is expected to more than
double, according to FactSet.
That has helped make Tencent one of the biggest companies in the
world, with a market capitalization of around $475 billion. If it
were listed in the U.S., Tencent would be the sixth-largest company
by market value, according to FactSet.
But while its WeChat business remains largely limited to China,
Tencent over the past few years has lifted its international
profile with several big deals, including acquisitions of the game
developer Epic Games Inc. and minority stakes in electric-vehicle
maker Tesla Inc. and videogame company Activision Blizzard Inc.
In a tweet earlier this year, Tesla Chief Executive Elon Musk
said he was "glad to have Tencent as an investor and advisor to
Tesla."
Tencent has invested in more than 40 tech startups in the U.S.
since 2011, joining fundraising rounds valued at $3.5 billion, the
Journal recently reported, excluding investments in public
companies. Recently, it led a $10 million investment round in
Academia.edu, a San Francisco-based platform for scientists and
academics to publish and review papers online, and it disclosed a
$3 million investment in Innovega Inc., of Bellevue, Wash., which
is building an augmented reality device into a contact lens.
People close to Tencent have said its investment strategy is
driven by a desire to stay current on the latest ideas and products
out of the U.S. tech sector.
Snap's relationship with Tencent stretches back to 2013. Tencent
first invested in Snap when it was still a small startup operating
out of a house on the boardwalk of Venice Beach.
When the Snapchat app was first shown to Tencent's executive
team, Tencent's founder, Pony Ma, was bewildered as to why it was a
hit, according to people who attended the meeting. Mr. Ma joked
that he didn't understand young people, the people said.
Nonetheless, Tencent later purchased a small stake in Snapchat.
Snap Chief Executive Evan Spiegel said at a conference in 2013
that he looked to Tencent as a "role model," and was impressed with
the company's success in figuring out how to make things their
users would buy, rather than relying on display advertising.
Tencent executives began discussing raising the company's stake
in Snap in September, after Snap's shares touched a series of lows
in August, a person familiar with the matter said. Tencent wanted
to support its investment in the U.S. company during its weakened
state, the person said.
Snap and outside partners have worked on adding features to the
messaging portion of the Snapchat app guided in part by the success
such features have had for Tencent's WeChat, such as the ability to
hail a car from within the app and a scanable QR code on users'
profiles.
--Saumya Vaishampayan and Georgia Wells contributed to this
article.
Write to Steven Russolillo at steven.russolillo@wsj.com and
Wayne Ma at wayne.ma@wsj.com
(END) Dow Jones Newswires
November 08, 2017 19:44 ET (00:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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