Chinese Internet giant Tencent Holdings Ltd (騰訊) yesterday said it could help Snapchat owner Snap Inc publish video games and improve advertising sales after acquiring a 12 percent stake in the US social media network.
Snap’s disclosure in a US regulatory filing that Tencent had recently bought 145.8 million of its shares on the open market set off a wave of speculation among investors about the relationship between the firms.
Shares in Snap on Wednesday closed at US$12.91, down 14.6 percent, as investors pummeled the company for slow user growth and treated Tencent’s move as an investment rather than the precursor to an acquisition.
Tencent’s shares do not have voting power and it will not have a board seat, but the two companies broadly believe in cooperation that goes beyond passive investing, according to Snap’s filing on Wednesday.
Tencent yesterday described a potentially close relationship.
“The investment enables Tencent to explore cooperation opportunities with the company on mobile games publishing and newsfeed, as well as to share its financial returns from the growth of its businesses and monetization in the future,” it said in an e-mailed statement.
It also referred to the potential for “newsfeed ads.”
Games and a newsfeed have not been a part of Snapchat, although the company on Tuesday said it was planning a redesign.
Analysts say Tencent, the world’s largest gaming company by revenue, has benefited from its social media apps for the phenomenal popularity of its smartphone games such as Honor of Kings, and would need the help of local social networks in promoting its games in overseas markets.
The Snapchat app is banned in China, where non-Chinese social media networks are generally restricted, although some videos originating in China were visible on the network on Wednesday presumably because of technological workarounds.
Snap declined to comment beyond a filing in which it said the California company was inspired by Tencent’s creativity and entrepreneurial spirit and grateful to continue a productive relationship.
Snap has an office in Shenzhen, China, where Tencent has its headquarters, to assist in the manufacture of Spectacles, Snap’s sunglasses that have a built-in camera.
Tencent has aspirations to assume a global role in technology and might be buying shares with that strategy in mind, said Lindsay Conner, a Los Angeles lawyer who has represented Chinese companies in the US.
“They often invest in companies to have a seat at the table, to understand businesses better, to see where the leading edge is between technology and content, and to have an insight into technology they should adopt or license,” he said.
Tencent first became an investor in Snap in 2013. The total size of its investment has not been disclosed.
Although Snap’s shares began to trade publicly in March in the hottest debut of a US tech stock in years, results since then have sent Snap shares down below its initial public offering price of US$17.
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