Tencent, the Chinese company behind the popular messaging platform WeChat, has built a more than $2bn stake in Snap, the California-based parent company of Snapchat, in a move that could see the groups collaborate on gaming and news.
In its latest quarterly filing, Snap said Tencent had built a position of 145.78m non-voting shares in recent months, equivalent to just over 12 per cent of the company’s basic stock and 10 per cent of its fully diluted share count.
“It’s an innovative company with a huge user base in western markets and we saw an opportunity between the two [companies] with news feed and mobile game publishing,” said a Tencent spokesman.
Tencent had been an investor in Snap for several years before the latter went public in March. The latest increase in its stake means the Los Angeles-based company now has two key corporate shareholders, with Tencent joining Comcast, the US cable group that invested $500m through its NBC Universal unit earlier this year.
“Tencent is excited to deepen its shareholding relationship with us, and that it looks forward to sharing ideas and experiences,” Snap said in its filing.
The Chinese internet group’s investment adds a new twist to Snap’s torrid time as a public company. Investors have seen its shares swing from $24.48 after its first day of trading to below $12 in August.
Snap shares dipped in after-hours trading on Tuesday, after the company disclosed that it had missed analysts’ growth expectations on both revenues and users and net losses had more than tripled.
Just before the disclosure of Tencent’s position early on Wednesday, Snap’s shares were off more than 20 per cent in pre-market trade in New York. After the increased stake was revealed, Snap’s decline moderated but its stock was still trading about 16 per cent lower at $12.70.
Tencent is one of the world’s most acquisitive tech companies, as well as the force behind some of the China’s biggest digital, social media and gaming platforms. It generated $4.3bn from games in the second quarter of this year, supported by the runaway growth of its wildly popular Honour of Kings franchise.
The conglomerate, which has long battled ecommerce group Alibaba for dominance of China’s tech market, is also in a race with its domestic rival for international reach.
Tencent first invested in Snap in 2013 and was followed by rival Alibaba, which put up $200m in 2015.
Last year, Tencent paid $8.6bn for a majority stake in Supercell, the Finnish company behind hit game Clash of Clans.
In March, the company bought a 5 per cent stake in Tesla, the electric car maker founded by Elon Musk. Tesla said the move could help it create a connected car that might use services such as paying for petrol using WeChat.
An ability to distribute content such as games or news feeds would bring it exposure in the US and Europe at a time when Tencent is increasingly pushing its credentials as a source of content as well as a tech platform.
Snap’s user base pales beside that of WeChat, which has 963m monthly active users. However the lion’s share of those users are domestic; international users are almost wholly among the Chinese diaspora or those doing business in China.
Tencent’s interest will be welcome news for Snap’s management, which has come under fire for the sliding share price and disappointing growth rates.
Evan Spiegel, Snap’s co-founder and chief executive, acknowledged on Tuesday that Snapchat was attracting new users at a “lower rate than we would have liked” and that the app could be “difficult to understand or hard to use” for many people.
He said the company was in the process of redesigning its app to make it easier to use, as part an effort to broaden its appeal beyond millennials to older people and to emerging markets.
