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China's Tencent acquires 12% stake in Snap as shares plunge

Snap's shares fell 16% to $12.67 as investors fretted about Snap's slowing user growth in the latest quarter

Reuters 

A sign of Tencent is seen during the third annual World Internet Conference in Wuzhen town of Jiaxing, Zhejiang province, China. (Photo: Reuters)
A sign of Tencent is seen during the third annual World Internet Conference in Wuzhen town of Jiaxing, Zhejiang province, China. (Photo: Reuters)

Inc said on Wednesday that Chinese tech and media investment firm Holdings Ltd had taken a 12 per cent stake in the company, a day after the owner of disappearing-messaging app was punished by for disappointing quarterly results.

Snap's shares fell 16 per cent to $12.67, well below their $17 price in March, as investors fretted about Snap's slowing user growth in the latest quarter and viewed Tencent's move as an investment rather than the precursor to a merger.

"(Tencent) buys all sorts of minority investments, and I don't think we can extrapolate that this means they intend to take over the company," said Wedbush Securities analyst Michael Pachter.

said it had only received the details of the stake from this month. Tencent's 145.8 million class A common shares of Snap, worth about $1.7 billion at Wednesday's price, give the Chinese company no voting rights.

president Martin Lau told his firm is "excited" to deepen its relationship with the firm, said in a regulatory filing. A spokesman declined to comment further.

The Chinese tech company, which owns mobile chat service WeChat, has bought stakes in several companies over the past few years, including electric car maker Tesla Inc and ride services company Lyft Inc. In 2013 it invested in through an affiliate.

Investments in the United States by Chinese tech heavyweights have become common, and the two countries unveiled $9 billion in new deals on the arrival of U.S. President Donald Trump in Beijing on Wednesday.

Apart from Tencent, Alibaba Group Holding Ltd and Baidu Inc have poured cash from a decade of growth in China into buying stakes in U.S. firms.

Snap's ownership structure, which reserves 95 percent of voting rights for its co-founders, made it likely was just accumulating a financial stake, analysts said.

While the stake could lead to a business partnership with and help expand its reach into China, Morningstar analyst Ali Mogharabi said Snap's problems remained, chiefly slowing user growth and competition from Facebook Inc's Instagram.

ROLE MODEL

co-founder and Chief Executive Evan Spiegel, who has in the past referred to as a role model, said on Tuesday that he was looking to redesign to reach a broader audience.

Snap's daily active users (DAU) stood at 178 million in the third quarter, below expectations of 181.8 million, according to research firm FactSet.

The company has disappointed investors each quarter since it floated on the New York Stock Exchange in March. has fallen by more than a half since its high of $29.44 on March 3, a day after it went public.

Unlike many U.S. stock market-listed corporations, is not obligated to disclose changes in Tencent's ownership of Snap's class A stock.

First Published: Thu, November 09 2017. 09:13 IST
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