Tencent Gives Snap A Capital Boost

Despite failing to meet growth projections and seeing a decrease in ad sales, Snapchat disclosed that Tencent has increased its stake in the company by more than 12 percent.

According to The New York Times, the investment by the Chinese internet giant is aimed to give the struggling Snap a boost of confidence. Less than 24 hours before the news, Snap revealed a third-quarter revenue of $207.9 million, falling short of the $235.5 million analysts predicted. Daily users averaged 178 million, fewer than the estimated 180.5 million.

Sales estimates for Snap have been declining since its initial public offering in March, and shares have dropped more than 10 percent. As a result, Snap announced that it is redesigning its mobile messaging app to make it easier for customers to use.

“There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don’t yet know how the behavior of our community will change when they begin to use our updated application,” CEO Evan Spiegel said. “We’re willing to take that risk for what we believe are substantial long-term benefits to our business.”

In a filing with the Securities and Exchange Commission, Snap said that Tencent and its affiliates had “recently acquired” 145.8 million non-voting shares through purchases in the open market. That represents nearly 17 percent of Snap’s class A shares, and about 12 percent of its total shares.

“We have long been inspired by the creativity and entrepreneurial spirit of Tencent, and we are grateful to continue our longstanding and productive relationship that we began over four years ago,” Snap said in the regulatory filing. “For its part, Martin Lau, Tencent’s president, informed us that Tencent is excited to deepen its shareholding relationship with us, and that it looks forward to sharing ideas and experiences.”

A spokesperson for Tencent said the company sees the Snap stake as a strategic investment. However, investors don’t seem that impressed so far: Snap’s shares were down nearly 15 percent on Wednesday.