A Chinese holding company bought a 10 percent stake in Snap’s (NYSE: SNAP) stock, the companies announced today, turning over a 20 percent loss in the U.S. company’s share price after Snap reported disappointing earnings on Tuesday.
Tencent Holdings, one of the largest internet companies in the world, acquired its stake in Snap, which went public in March. Tencent has a market capitalization of more than $470 billion and is known for its investments in smartphones, web portals, mobile games and tech start-ups in Asia.
Snap’s announcement of Tencent’s stake came in a regulatory filing and follows reports dating back to 2012 that the Chinese company had previously invested in Snap. Tencent now holds a 12 percent stake in the company.
SNAP stock tumbled on Tuesday after it reported third-quarter revenue numbers that fell well short of consensus estimates. The company gave bulls very little reason for optimism in the near term, and has now missed market expectations in each of its three earnings reports as a public company.
In addition to the revenue disappointment, Snap reported 178 million daily active users for its Snapchat social media platform, nearly 4 million users short of the 181.8 million analysts were expecting. Average revenue per user of $1.17 also missed consensus expectations of $1.30.
Snap blamed $39.9 million of its revenue miss on a write-down of its Spectacles HD video sunglasses.
Snapchat has also lowered advertising prices by 60 percent compared to a year ago as it transitions to an auction-based advertising format. Snap says the transition may be a revenue headwind in the short term, but it is a critically important step in building a scalable advertising business in the long term.
Summit Redstone Partners managing director Jonathan Kees says Snapchat’s ad pricing and average revenue per user are declining while Facebook (FB) numbers are on the rise.
“Basically, in order to drive demand, in order to fill up inventory, [Snap] had to lower pricing,” Kees said on CNBC. “Facebook at the same time had raised prices in the third quarter, and the price hike was received well.”
Kees says Facebook’s Instagram and WhatsApp platforms are taking users away from Snap, and most advertisers aren’t willing to take a gamble on Snapchat when Facebook has a proven track record.
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