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Tencent sees video games, more ads in Snapchat’s future

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Chinese Internet giant Tencent Holdings Ltd said it could help Snapchat owner Snap Inc publish video games and improve ad sales after acquiring a 12 per cent stake in the US social media network.


Snap’s disclosure in a US regulatory filing that Tencent had recently bought 145.8 million of its shares on the open market set off a wave of speculation among investors about the relationship between the firms.


Tencent’s shares do not have voting power and it will not have a board seat, but the two companies broadly believe in cooperation that goes beyond passive investing, according to Snap’s filing. Tencent described a potentially close relationship.


“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 monetisation 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 said it was planning a redesign.


Analysts say Tencent, the world’s largest gaming company by revenue, 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 social networks in promoting its games in overseas markets.


The Snapchat app, though, is banned in China, where non-Chinese social media networks are generally restricted, although some videos originating in China were visible on the network last week presumably because of technological workarounds.


US investment analysts said they did not expect a change in that regard.


It is unlikely that Snap, “would ever be allowed to establish a foothold in China even if their relationship with Tencent were deeper,” Brian Wieser, senior analyst at Pivotal Research Group in New York, said in a report to clients.


The companies operate on different scales. Tencent’s holdings include messaging apps QQ and WeChat, both ubiquitous in China, and its market capitalisation of $469 billion is among the largest in the world. Snap’s is $15 billion.


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 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 that writes about China and California’s Silicon Valley. — Reuters


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