Video games could be next for Snapchat, Tencent says

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Chinese gaming and social media company Tencent Holdings Ltd, which has raised its stake in Snapchat, has signaled its desire to work with the US company in video games and ad sales.

Snapchat owner Snap Inc disclosed in a US regulatory filing on Wednesday that Tencent recently bought 145.8 million of its shares on the open market, fueling investor speculation about how the two companies might work together.

In describing its stake, Tencent, the world’s largest gaming company by revenue, implied on Thursday that a close relationship with Snap could go beyond passive investing and involve assisting the US company with strategy.

Tencent’s shares do not have voting power and the company will not have a board seat. Snap said in its filing on Wednesday that Tencent notified it of the share purchases this month.

“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,” Tencent said in an emailed statement. It also referred to the potential for newsfeed ads.

Investors treated Tencent’s new stake as an investment rather than a step toward an acquisition, while analysts viewed the move as potentially more beneficial for the Chinese company than for Snap, an image messaging and multimedia mobile application.

Snap Inc. enjoyed a blissfully successful IPO earlier this year, but shares have plunged as the company's bottom line disappoints. /Reuters Photo.

It was not immediately clear if Snap has the same plan.

The California-based company declined to comment beyond its filing, in which it said it was inspired by Tencent’s creativity and entrepreneurial spirit and grateful to continue a productive relationship.

The US social media company has struggled since its March initial public offering to meet analyst expectations for user growth, and it is locked in fierce competition for users and ad dollars with Facebook Inc.

Analysts said Tencent 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 networks to fuel overseas growth.

Honour of Kings, based on Chinese historical characters, is the top-grossing mobile game in the world. It become so popular that Tencent in July curbed play time amid reports of addiction among children.

Tencent also owns Riot Games, developer of League of Legends, which is the most popular computer game in the United States and Europe, according to research firm Newzoo.

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 US dollars is among the largest in the world. Snap’s is 15 billion dollars.

Tencent is China's largest mobile game developer, its dominant position nailed down by its successful multiplayer online battle arena game, The Honor of Kings. /Reuters Photo.

“The China market is in some ways more advanced in social media and messaging than the US is,” said Rebecca Fannin, founder of Silicon Dragon, a website about China and California’s Silicon Valley.

“Tencent might have teams come in and work with them,” Fannin said.

“They often invest in companies to have a seat at the table, to understand businesses better, to see where the leading edge is between technology and content, and to have an insight into technology they should adopt or license,” he said.

Tencent first became an investor in Snap in 2013. The total size of its investment has not been disclosed.

Source(s): Reuters