Economy

China's Tencent buys $2bn stake in Snap, despite poor results

China's Tencent buys $2bn stake in Snap, despite poor results”

"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. Snap's disclosure in a U.S. 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.

It helped the US company recoup a slide of nearly 20 percent in pre-trading in NY after it reported third-quarter revenue and user growth well below Wall Street expectations. Snap had about 1.2 billion shares outstanding, as of Oct 31. Snap said it had only received the details of the stake from Tencent this month and declined to answer further questions on the filing.

"As evidenced by China's Tencent taking a 10 percent plus stake in Snap this morning, there is clear inherent value in the company's about 180 million DAU, strong engagement numbers, and growing worldwide social media platform", GBH Tech Research analyst Dan Ives said. Tencent on Thursday described a potentially close relationship. It also referred to the potential for newsfeed ads. Snapchat does not have a Facebook-style newsfeed, but said on Tuesday that it was planning a redesign that could include such a feature.

Last year, PepsiCo Inc's Gatorade ran a interactive video game ad on Snapchat featuring tennis star Serena Williams.

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 Honour of Kings, and will need the help of local social networks in promoting its games in overseas markets. Honour of Kings, based on Chinese historical characters, is the top-grossing mobile game in the world. Like other USA social networks, Snapchat is banned in China, although videos originating there are visible on the network presumably because of technological workarounds.

"The China market is in some ways more advanced in social media and messaging than the United States is", said Rebecca Fannin, founder of Silicon Dragon, a website that writes about China and California's Silicon Valley.

In a statement, Spiegel said: "We were very excited about Spectacles and by the initial reception and because we were so excited I guess we made the wrong decision and we were balancing the trade off with unit economics of course that come with hardware, but ultimately we made the wrong decision based on the early traction and ordered a lot of long lead time parts and ultimately weren't able to sell as many Spectacles as we thought we'd be able to based on the early adoption".

And sources have told Business Insider that Snap's internal data shows that among people who have bought Spectacles, less than half of them continue to use them after the first four weeks. The total size of its investment has not been disclosed.



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