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Chinese Firm Tencent Quietly Bought 12% Stake in Snapchat

Jacob Wohl

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(Reuters) – Tencent Holdings Ltd now has a 12 percent stake in Snapchat operator Snap Inc, company filings showed on Wednesday, the latest in a string of major investments in the United States by China’s new tech heavyweights.

The details of the stake, revealed by Snapchat after badly received quarterly results, came as U.S. and Chinese firms announced $9 billion in new deals on the arrival of President Donald Trump in Beijing.

It helped the U.S. company recoup a slide of almost 20 percent in pre-trading in New York after it reported third-quarter revenue and user growth well below Wall Street expectations.

Snap shares recovered to trade down 12 percent at $13.29 in premarket trading from a close of $15.12 on Tuesday.

“While such news may be initially perceived as positive by the market, one has to remember that Tencent’s holdings in Snap is the non-voting Class A shares, which makes a possible acquisition of Snap by Tencent less likely,” said Morningstar analyst Ali Mogharabi.

Along with Alibaba and Baidu, Tencent has poured billions of cash from a decade of growth in China into buying U.S. firms and holds 5 percent of electric car maker Tesla, as well as stakes in ride service company Lyft and augmented reality startup Magic Leap.

The largest social media and gaming company in China and owner of the popular mobile application WeChat, it had previously invested in Snap through an affiliate in 2013, and has been referred as a “role model” by Snap’s co-founder and Chief Executive Evan Spiegel.

Snap said in its quarterly report that Tencent had bought 145.8 million shares of its non-voting Class A common stock on the open market. Snap had about 1.2 billion shares outstanding, as of Oct 31.(bit.ly/2zqvybE)

“The positive side of this could be that the two companies may create business partnership of some kind or Tencent may aid Snap in expanding its reach into China,” Morningstar’s Mogharabi said.

Unlike many U.S. stock market-listed corporations, Snap is not obligated to disclose changes in Tencent’s ownership of Snap’s Class A stock. Snap said it had only received the details of the stake from Tencent this month and declined to answer further questions on the filing.

Snap, on Tuesday, reported third-quarter revenue and user growth well below Wall Street expectations, as it struggles to compete with Facebook Inc’s Instagram. The company has disappointed investors each quarter since it floated on the New York Stock Exchange in March.
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Jacob Wohl is the CEO and Head of Fixed Income and Interest Rates for Montgomery Assets, a proprietary trading and asset management firm based in Los Angeles, CA. Jacob Wohl is the host of the Offended America Podcast

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