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Tencent of China Raises Its Stake in Struggling Snap

Before its market debut, Snap had been lauded as being hipper and more innovative than Facebook and other social media companies. Since going public, however, it has had to address slower-than-expected user growth, rising costs and investor doubts about its strategy for dealing with both. Other problems that the company has grappled with include overestimating demand for its Spectacles camera-equipped sunglasses, a once-hot product whose sales cooled rapidly.

During a call with analysts on Tuesday, Evan Spiegel, Snap’s co-founder and chief executive, said that the company was focused on issues like simplifying the ad-purchase process on its platform and making its core app easier to use, a longstanding complaint. He also promoted the company’s efforts to grow its content and augmented reality offerings.

“I guess we’re just not afraid to make changes in the long-term interest of the business,” Mr. Spiegel said on the call. “So I would expect us to continue learning as we grow the business and making changes that we think are in the best interest of growing the user base, growing revenue and, ultimately, providing our customers with a great product experience.”

That he spoke openly about his priorities marked a change for the Mr. Spiegel, who is normally tight-lipped about his strategy. Such an approach has frustrated investors who have sought a better sense of where the company was headed.

But now, Snap has the support of Tencent. The Chinese company has had a history of taking stakes in chat apps, such as Snap, in order to learn more about how they work and how they perform from a business perspective. It has long held a stake, for example, in South Korea’s Kakao.

In a filing with the Securities and Exchange Commission, Snap said that Tencent and its affiliates had “recently acquired” 145.8 million nonvoting shares through purchases in the open market.

That represents nearly 17 percent of Snap’s class A shares, which hold no voting power, and about 12 percent of its total shares.

“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 said in the regulatory filing. “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.”

A spokesman for Tencent said at a company conference in Chengdu, China, that it viewed the Snap stake as a strategic investment.

“We saw Snap as an innovative company with a huge user base that is mostly focused on Western, developed markets,” he said.

Snap described Tencent as a long-term shareholder, but it did not disclose the Chinese company’s total holdings. It said it had no obligation to disclose changes in Tencent’s holdings of nonvoting shares because of Snap’s ownership structure.

Tencent had the option to raise its stake in Snap in a fund-raising round before the company’s initial public offering earlier this year, but declined.

So far, stock market investors do not appear heartened by Tencent’s move. Shares in Snap were down nearly 12 percent in premarket trading on Wednesday, at $ 13.26 — well below the company’s initial offering price of $ 17 a share.

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