Chinese internet company, Tencent, has purchased a 12% stake in Snap Inc. worth over $2billion. According to the WeChat owner, it says it can help the Snapchat owner publish video games and improve ad sales.
The purchase of 145.8 million of its shares on the open market was disclosed by Snap in a recent U.S. regulatory filing.
In an emailed statement, Snap says “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.”
Though this investment does not give voting power and a board seat, “the two companies broadly believe in cooperation that goes beyond passive investing.”
It is rather strange that this investment is coming on the back of poor financials released last week by Snap. Though it earned $207.9 million in revenue for Q3 falling short of the expected $237 million, it posted a loss of $443.2 million. Snap blamed its revenue miss on shifting from direct sales to an auction-based bidding system for selling advertisers. The company also took a $40 million charge on unsold Spectacles hardware, confirming reports of them selling worse than the company expected.
Tencent believes this company has potential and “is positioned to enable Snap to dig into its experience of growing WeChat, China’s dominant messaging app which boasts 800 million monthly users worldwide, and potentially tap into other business lines, including its games business”
Snapchat is banned in China even though Snap has an office in Shenzhen, China, to assist in the manufacture of Spectacles, Snap’s sunglasses that have a built-in camera.
Tencent first invested in Snap in 2013 although the size of its stake in the company is not public information.