Snapchat parent company Snap disclosed in a U.S. regulatory filing, that Chinese tech giant Tencent recently bought 145.8 million of its shares on the open market. On Wednesday, Snap shares closed at $12.91, down 14.6 percent.
While Snap investors are worried about the company, Tencent’s investment proved to be a move that showed faith in the company. That said, some investors and analysts treated Tencent’s move as a precursor to an acquisition.
Tencent’s shares do not have voting power and no executive from Tencent will have a board seat. The two companies broadly believe in cooperation that goes beyond passive investing, according to Snap’s filing on Wednesday. Tencent on Thursday described a potentially close relationship.
The companies operate on different scales. Tencent’s holdings include messaging apps QQ and WeChat, both ubiquitous in China, and its market capitalization of $469 billion is among the largest in the world. Snap’s is $15 billion.
“The China market is in some ways more advanced in social media and messaging than the U.S. is,” said Rebecca Fannin, founder of Silicon Dragon, a website that writes about China and California’s Silicon Valley.
“Tencent might have teams come in and work with them,” Fannin said.
While Snapchat focuses on sharing pictures and video between friends, WeChat offers payment processing and more. Tencent said that it expected Snapchat to continue to grow, particularly in “affluent Western markets” such as the United States and Europe.
“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 emailed 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.
“We have long been inspired by the creativity and entrepreneurial spirit of Tencent and we are grateful to continue our longstanding and productive relationship that began over four years ago,” Snap’s 10-Q filing reads. “For its part, Martin Lau, Tencent’s president, informed us that Tencent is excited to deepen its shareholding relationship with us, and that it looks forward to sharing ideas and experiences.”