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Could Tencent Be Enough for Snap?

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Tencent takes additional 12% equity stake in Snap

Tencent (TCEHY), the China-based (MCHI) Internet company with interests in social media, digital entertainment, and mobile payments, recently purchased millions of Snap (SNAP) shares on the open market. Snap later disclosed in a securities filing that Tencent had purchased 145.8 million of its shares—equivalent to a 12% equity stake in the company.

The new stake adds to the holdings that Tencent already had in Snap, following its participation in a Snap fundraising round in 2013, according to the Wall Street Journal. The total size of Tencent’s investment in Snap at that time wasn’t disclosed.

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Introducing Snap to video games business

According to a statement cited by Reuters, Tencent appears to have a plan to help turn around Snap’s fortunes. Tencent views its latest investment as a means to help it to explore corporation opportunities with Snap in areas such as mobile games and newsfeed ads.

Tencent is the world’s largest video game publisher by revenue and the name behind apps such as WeChat and QQ, which are popular in China and other parts of Asia.

According to PricewaterhouseCoopers (or PwC), the global video game market could grow to $90.1 billion by 2020, up from $71.3 billion in 2015. As such, Tencent could introduce Snap to a huge new revenue opportunity.

Tencent sees bright prospects for Snap

Although Snap missed its revenue and audience growth expectations in 3Q17, Tencent expects the company to continue growing in affluent Western markets like the US (SPY) and Europe (EFA). Snap finished 3Q17 with 57 million daily active users in Europe and 77 million daily users in North America on its Snapchat app.

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