Chinese Internet giant Tencent plans to buy a nearly 20% stake in 58.com, moving Tencent further into local e-commerce and elevating its rivalry with fellow Internet king Alibaba.
Tencent's flagship products are social-messaging apps and browsers, but Friday's announcement marks its second big e-commerce investment this year.
The deal is expected to step up Tencent's rivalry with Alibaba, said to hold 80% of China's e-commerce market.
"Both want to have a stack — a complete set of offerings to compete with each other as the market matures and consolidates," Bill Whyman, an analyst at research firm ISI, told IBD.
Tencent says it plans to pay about $736 million for a 19.9% stake in 58.com (WUBA), a site similar to Craigslist. It will buy 36.8 million Class A and Class B shares for $20 apiece, equating to about $40 per U.S.-traded 58.com share, the companies said.
Repurchasing Shares
58.com plans to use some proceeds to repurchase about 27.6 million shares from pre-IPO shareholders. 58.com stock jumped 5.1% Friday.
In March, Tencent took a 15% stake of JD.com (JD), an e-commerce company similar to Amazon.com (AMZN) that held its U.S. initial public offering in May. Tencent boosted its stake to 20% when JD.com made its IPO.
Tencent also bought a 20% stake in Yelp (YELP)-like Dianping in February.
Tencent on Friday laid out its big-picture strategy for the 58.com and JD.com partnerships.
The company says it will integrate e-commerce features into its market-leading QQ and WeChat messenger services, which it says will help drive retail traffic. Tencent says the integration will "help users improve the level of communication between each other and with merchants.
Tencent's "strong" social platforms make it an attractive target for partnerships, wrote Pacific Crest analyst Cheng Cheng in a research note this month.
Tencent also plans to integrate e-commerce features into its QQ browser and other popular Web products, the company says.
Alibaba IPO Pending
Meanwhile, e-commerce giant Alibaba, which is planning a blockbuster U.S. IPO possibly in August, last year partnered with social network Weibo (WB) to integrate retail products and payments into social. Alibaba made a $586-million investment in Weibo in April 2013.
Alibaba seems to be going after social partnerships, while Tencent is going after e-commerce partnerships, says Whyman. The goals for these partnerships seem to be getting more users and boosting revenue.
"These partnerships show you where they think they have to be stronger to deal with competitors," Whyman said.
The Chinese tech market has matured quickly, with smartphones already in the hands of most consumers in big markets such as Shanghai and Beijing, says Whyman.