Tencent spent greater than Alibaba on startups in 2020

TOKYO / SHANGHAI – Chinese internet powerhouse Tencent Holdings has Alibaba Group invested in startups in 2020, Spend more than $ 12 billion buying shares in 163 companies across a variety of industries.

Tencent became the largest start-up donor among China’s non-financial corporations as part of an aggressive but carefully crafted growth strategy based on loose partnerships cemented by capital commitments. Beijing’s efforts to step up efforts to monitor and control its large technology groups, however, could test the feasibility of the strategy.

When Kuaishou, a Chinese video app, made its public debut in Hong Kong in February, mutual funds at home and abroad said together that Tencent was the biggest winner in the process.

Tencent had bought Kuaishou shares multiple times since 2017, for a total investment of around $ 2.8 billion. When Kuaishou stock rose sharply when it went public, Tencent posted earnings of more than $ 18.4 billion on paper.

Kuaishou is widely seen as the main competitor of ByteDance, the Chinese company that owns the short video app TikTok. The successful IPO catapulted its market capitalization to more than HKD 1.2 trillion ($ 154 billion) and brought Tencent a huge profit.

In addition to its own video app, Kuaishou also offers videos through WeChat, the multipurpose messaging, social media, and mobile payment app developed by Tencent and used by 1.2 billion people.

Both Tencent and Kuaishou have expanded their customer bases and services through their partnership. This is a case in point where the Tencent strategy works well.

Tencent began serious efforts to invest in startups in the late 2000s and had acquired stakes in around 880 companies by the end of February 2020, according to Chinese research group Beijing Suiyue Juzi Technology (ITjuzi).

In 2020, capital flowed into 163 companies, up 40% from 2019. The total investment was over 1.3 trillion yen ($ 12 billion), excluding cases where the amount was undisclosed.

Tencent’s investment portfolio includes many leading companies that provide services through smartphone apps. (Photo by Tomoko Wakasugi)

Tencent’s investment strategy is heavily focused on the entertainment and games industries, with holdings in 183 and 142 companies in these two sectors, respectively.

The Internet behemoth, which derives most of its profits from the gaming business, benefits greatly from synergies generated through its capital and business relationships with game, music and video service providers. The company has also invested in overseas companies, including PlatinumGames, an Osaka-based game developer.

Unlike domestic rival Alibaba, which frequently seeks to acquire a controlling stake in companies it invests in, Tencent prefers to remain a minority shareholder and avoids directly meddling in the management of the companies in which it invests.

Among the companies that are partially owned by Tencent are Pinduoduo, an interactive e-commerce platform, Meituan, a leading grocery delivery service, and Sea, headquartered in Singapore, which operates online games, e-commerce and digital financial services , went public.

Tencent’s investment portfolio also includes a variety of unicorns or private companies valued at over $ 1 billion, such as WeDoctor, the world’s leading medical health technology platform.

Tencent’s stake in publicly traded startups with no subsidiaries rose to 890.7 billion yuan ($ 137 billion) in late September 2020, up 12 times in five years, according to the company’s financial statements.

However, due to Chinese President Xi Jinping’s campaign to tighten control over large technology companies, the investment offensive is facing political headwinds.

Chinese regulators announced last Friday that 12 companies, including Tencent, had been fined for acquisitions without notifying the authorities. The steps violate the antimonopoly rules. According to regulators, Tencent did not inform them of its acquisition of Yuanfudao, an online tutoring platform, in 2018.

Ma Huateng, Tencent’s chief executive, recently expressed his loyalty to the Xi government by calling for tighter governance of the internet economy at the Chinese parliamentary session in Beijing.

Ma made the proposal at the National People’s Congress, which began on March 11, calling on the government to step up oversight of certain platform providers to keep users safe.

Tencent offers online financial services, including a mobile retail banking unit for consumers and small businesses. They are similar to those of Ant Group, the Alibaba-backed fintech group that was forced to postpone its planned IPO.

In December, a Tencent subsidiary and Alibaba were fined by China’s antitrust authorities for anti-competitive practices. Tencent is at increased risk of government interference if regulators raise awareness of potential irregularities related to licensing and business scope.

So far, the huge popularity of WeChat, which serves as a messaging and payment app, has allowed the company to benefit from its relatively low ownership interests.

However, Tencent’s growing profits and valuations have helped mask some governance issues stemming from the fact that companies in which Tencent has invested have tacitly complied with the tech conglomerate’s wishes despite its minority stake. The company has a clear interest in doing everything possible to avoid tight government scrutiny of its investments and operations.

Additional coverage from Yusuke Hinata in Guangzhou, China.

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