<Editor's Pick>Tencent has not stopped its investment in the past two weeks despite the complex and uncertain market conditions

来源 / 投资界(ID:pedaily2012)

作者 / 李拜天

According to the documents submitted by Tencent and Pinduoduo to the US Securities and Exchange Commission (SEC), Tencent has just invested $ 50 million to continue to increase its holdings of Pinduoduo. And together with its other long-term investors, they are expected to increase their purchases of $1.1 billion worth of new shares. 

Until now, Tencent holds a total of 29.2% of Class A common shares in Pinduoduo and is still the second largest shareholder. However, the current "unprecedented" fraud scandal of Luckin Coffee has cast a shadow on the Chinese stock market, and everyone began to worry about the situation of Pinduoduo.

Coincidentally, Tencent has also just officially controlled Huya. On the evening of April 3, Huya announced that Tencent had become its largest shareholder, and the voting power was increased to 50.1%. Unsurprisingly, Tencent's integration of Douyu and Huya, its other holding platform, is coming. Last year, Tencent established a live broadcast division whose main task is to coordinate the resources of the three platforms of Douyu, Huya and Tencent's e-game.

In just a few days, Tencent has invested two big platforms, which is just an iceberg of Tencent's recent investments. Under the epidemic, when many VC / PE institutions plan to slowdown their paces of investment, Tencent Investment, like Sequoia Capital China Fund, intensively countered the trend.

Tencent quietly invests $ 50 million to Pinduoduo 

Tencent continued to show unlimited interest in e-commerce field by increasing its holdings of Pinduoduo.

On April 3, the documents submitted by Tencent and Pinduoduo to the US Securities and Exchange Commission (SEC) showed that Tencent subscribed for 61,574,400 Class A common shares (a total of 1,538,935 ADS) at a total price of approximately $ 50 million on March 31. Calculated at this price, Tencent subscribes for Pinduoduo's shares at approximately $ 32.49 / ADS, and the current share price of Pinduoduo is $ 36.28 / ADS.

Also on March 31, Pinduoduo once announced that some long-term investors have purchased new shares of the company through targeted issuance, with a total value of $ 1.1 billion, accounting for about 2.8% of the total issued shares. The transaction is expected to be completed in early April 2020 .

It is reported that this round of fund-raising is mainly used to promote the rise of China's agricultural products and continue to consolidate the comprehensive capacity of the largest platform for the rise of agricultural products. On the other hand, it can  promote strong economic convection between urban and rural areas, and drive the transformation and upgrading of foreign trade enterprises, as well as the "new infrastructure" transformation of China's C2M industrial belt. In 2020, the company will continue to expand the scope and strength of "10 billion subsidy" in the new consumption field.

Tencent has a deep relationship with Pinduoduo. Since entering Pinduoduo's B round financing in 2016, Tencent has participated in every round before Pinduoduo's listing. When Pinduoduo was listed on the stock market that year, Tencent accounted for 17% of the shares and was the second largest shareholder. As of now, Tencent holds about 790 million shares in Pinduoduo, accounting for 29.2%, which is still the second largest shareholder.

As we all know, Pinduoduo is one of Tencent's weapons to against Alibaba at the e-commerce market. Tencent's e-commerce layout is gradually developed through investment, including JD.com, Vipshop, Pinduoduo, Mogu.com, etc., among which JD.com is the biggest layout. As of the end of the first quarter of 2020, Liu Qiangdong held a 15.4% stake in JD.com, and remained the second largest shareholder of JD.com, while JD.com's largest shareholder was Tencent, which held 17.8%.

Despite the help of Tencent's strong traffic logic, the development of these e-commerce platforms varies in length. At present, JD.com and Pinduoduo are all entrusted with their own tasks: JD.com is used to target Tmall in the mid-to-high-end market and B2C, low-end and C2C; as for Pinduoduo, it is used to fight against Taobao and Taobao special edition app, with a view to complementing each other.

Why does Tencent choose to increase investment at this time?

At present, Luckin Coffee is trapped in the whirlpool of its fraud scandal, which has started to effect Chinese stock companies. And Pinduoduo, which is also listed at an incredible speed, is the first to bear the brunt.

Back in 2018, when Pinduoduo, less than 3 years old, rang the bell on Nasdaq, the controversy about the company reached a high point.

Like Luckin Coffee, Pinduoduo's growth has always been accompanied by conjectures. Many people analyze Pinduoduo's business model and want to find out where it took only 2 years to make GMV break the 100 billion mark. However, taking this data into comparison, JD.com takes 15 years and Taobao takes 5 years to achieve the goal. A lot of people who take a negative attitude are unable to accept a company that once grandly moved fakes to the countertop can enter the capital market.

Even after the IPO, the controversial discussion about the Pinduoduo's business model has not stopped, and Pinduoduo is desperately trying to save the market image. In September last year, Pinduoduo revised its mobile app and launched nearly 500 well-known brands to create the impression of quality rather than low prices.

Last month, Pinduoduo, which has been on the market for nearly two years, handed over its Q4 2019 and full-year earnings. The financial report shows that as of December 31, 2019, Pinduoduo's net cash book was 34.9 billion yuan. As of the end of 2019, the number of Pinduoduo's annual active buyers reached 585.2 million, with a net increase of 48.9 million in a single quarter, a net increase of 167 million compared with the same period of the previous year.

What do these numbers mean? The number of active buyers of 585.2 million was a net increase of 209 million from 272.6 million in the same period of the same year. Looking at it horizontally, Alibaba's data for the same period was 711 million and JD.com was 362 million.

Perhaps it can be understood as follows: Pinduoduo's ten billion subsidy policy, which was launched in the second half of 2019, has begun to achieve initial success. However, the method of acquisition is not sustainable and requires a lot of cash. A few days ago, Pinduoduo announced that in 2020, the company will continue to expand the scope and intensity of "10 billion subsidy" in the new consumer field. Although Pinduoduo currently has 33.3 billion in cash and cash equivalents on its book, the investment funds of Tencent and long-term investors have become particularly important.

In terms of money-losing subsidy, Pinduoduo is similar to Luckin Coffee. The impact of Luckin Coffee's fraud scandal continues to expand. The entire Chinese stock market, especially companies such as Pinduoduo and Nio, which are still losing money in the US stock market, had to face a more severe and profound scrutiny.

Tencent's investment sweeps the market

Pinduoduo is not Tencent's latest investment case. In the past two weeks, Tencent's  intensive investments sweep the market.

On the evening of April 3, Huya issued an announcement saying that Tencent formally issued a notice letter to Huya and Huanju Group. According to the letter, Tencent had exercised its equity to purchase 16,523,819 shares of Huya Class B common stock at a total purchase price of approximately $ 262.6 million in cash. After the transaction was completed, Tencent became the largest shareholder of Huya, whose voting power was increased to 50.1%.

At this point, Tencent officially controlled Huya and became the big owner of the two major live broadcast platforms, Douyu and Huya. In terms of Douyu, Tencent holds 37.2% of the shares and is the largest shareholder of it.

Based on this, the outside world has speculated that the merger of Douyu and Huya is finally coming. As early as 2015, Tencent tried to promote the merger of Douyu and Longzhu.com. Although it did not reach an agreement at last, Tencent's integration of e-game resources never stopped. In March 2019, Tencent set up a live broadcast business department in-house, whose main task is to coordinate the resources of three platforms, namely, Douyu, Huya and its e-game.

In addition to its best social and gaming fields, Tencent's recent intensive investment has also expanded to the financial and intelligent manufacturing industries. According to Tianyancha, on April 3, Shenzhen Tencent industrial innovation and win Co., Ltd. added a new foreign investment information. The invested enterprise is Shenzhen Chinese Intelligent Manufacturing Technology Co., Ltd., with a subscribed capital contribution of 75000 yuan and a shareholding of 0.25%.

Before that, on March 26 and 27, Shenzhen Tencent industrial innovation and win Co., Ltd. successively invested in three fintech companies, each holding less than 1% of the shares. On March 19, it also invested in the intelligent vision solution provider of the Internet of Things, Uni-Ubi, which focuses on the long-tail market in the field of Pan security.

What's more, Tencent also led the investment in the big data and artificial intelligence service provider Mininglamp Technology together with Temasek, and Kuaishou also participated in the follow-up investment.

In the online music platform market, Tencent's investment in Universal Music has finally come to an end. On March 31, Tencent Holdings announced that the consortium led by it has completed the acquisition of a 10% stake in Universal Music (UMG) with a transaction value of 3 billion euros.

The potential buyers of Universal Music include KKR, Alibaba, Apple, Amazon, and US telecommunications operator Verizon, ect. In this nearly two-year deal, Tencent finally killed out of many competitors, which also heated up the battle of the Chinese online music platforms. Earlier, Alibaba announced that it has reached a cooperation with Taihe Music Group. Alibaba had previously invested heavily in NetEase Cloud Music. On the same day that Tencent announced its investment in Universal Music, NetEase Cloud Music announced that it will work with Rolling Stone Records.

The above is just an iceberg of Tencent's investment. Tencent established the Investment and M & A Department (Tencent Investment) in 2008, focusing on investment and M & A in consumer Internet and investment related to industrial Internet fields worldwide. At the beginning of 2020, Liu Chiping announced the latest transcript of Tencent Investment: As of January 2020, Tencent has invested more than 800 companies, of which more than 70 have been listed and more than 160 have become unicorns with a market value or valuation of more than $ 1 billion.

In the past 10 years, Tencent has invested in more than 700 companies. Now, under various uncertainties in the market, Tencent has not stopped its investment, or even the pace is getting faster and faster, which is no less than any top VC / PE institution in China.

This is an article from WeChat official accounts PEdaily.cn(ID:pedaily2012), written by Li Baitian, translated by Chris Yuan.