Shares of Snap, the parent company behind the social media app Snapchat, sank nearly 15 percent Wednesday, continuing a slide that has dogged the firm since it went public earlier this year. The latest drop was triggered by weak financial results, but those invested in Snap — financially or emotionally — at least had something new to talk about: a filing that revealed the Chinese tech giant Tencent was increasing its stake in the company.
Tencent is the massive Chinese firm behind a number of companies, most notably the messaging program WeChat. It, like other major Chinese tech firms, has pursued an aggressive investing strategy that's made it a formidable world player across the globe. In addition to Snap, in which Tencent now has an approximately 12 percent stake, the firm has also invested in Tesla, as well as Supercell, maker of the mobile game “Clash of Clans,” and Riot, the company behind the popular video game “League of Legends."
Tencent has a track record of investing in messaging companies of all sizes, including Snapchat in its early days, said Connie Chan, partner at the venture capital giant Andreessen Horowitz. Plus, she said, the firm is adept at making investments in companies from which it can pick up new tricks.
“Tencent can learn from Evan [Spiegel, Snap's chief executive], who’s a great product thinker,” she said.
Snap, in return, can learn a lot from Tencent, she said, which has made WeChat into the default method of communication in China — essentially replacing email, social media, phone calls and texting. Understanding how to build a platform should be “top of mind” for Snapchat or any company looking to build relationships with consumers, Chan said.
That could help Snap build sources of revenue beyond advertising, which has proven a tricky business for social media firms. Giving companies the exposure they're paying for without bombarding users with ads in odd places is hard enough. It's even more difficult for a company like Snapchat, which is built around very personal communication, said Jay Eum, managing director at investment and business development firm Translink Capital.
“Users aren’t excited about ads, especially when they show up in chat streams,” he said.
Speaking more broadly, Tencent's increased interest in Snap also gives it another way into the influential American technology scene. Along with Alibaba, another Chinese tech behemoth, the firm has looked to investment in global companies as a way to spread its reach — even if it never becomes a household name in the United States.
“Tencent’s ambitions are as big as Alphabet’s or all the other U.S. tech giants, which is to be involved in as many parts of the technology world as possible,” said Adam Segal, the director of the Digital and Cyberspace Policy Program at the Council on Foreign Relations. Tencent, for instance, is upping its research budget as well as looking at artificial intelligence, self-driving cars and social media.
Of course, a Chinese investment in a United States firm comes with its own tensions. Segal cited China’s new national cybersecurity law, which requires foreign companies to keep user data in China, and pressure for U.S. firms to agree to joint ventures with Chinese counterparts as two notable tech policy concerns for the Trump White House.