Tencent, JD.com Make Big Investment in Retailer
The combined force of JD.com and Tencent represents a major operation in China, or in anywhere else for that matter. So when the two get together to do something, it’s going to be pretty big, and in this case, $863 million big. What did the duo sink that kind of cash into? Oddly enough, an online retailer known as Vipshop.
It’s not that Vipshop is a particularly small operation; Tencent itself sunk $604 million into Vipshop to land a seven percent stake, which means the whole thing is worth in the 10 figure range. JD.com, meanwhile, rounded out the total with $259 million just to up its stake from 2.5 percent to 5.5 percent.
That was enough to fuel a feeding frenzy for Vipshop stock, and the share price was up 40 percent as a result. The end result, though, was enough to potentially challenge Alibaba going forward. Vipshop is actually the fourth-largest online retailer in China, reports note, with 3.5 percent of the overall Chinese market. It’s behind Tmall from Alibaba, JD.com itself, and Suning.
Vipshop did surprisingly well on the strength of a flash-sale business model, and has seen average revenue per user climb 11 percent in the last year, hitting 643 yuan—about $97.77 as of this writing—last quarter thanks to increased frequency and higher average purchases. Better yet, analysts are projecting about 33 percent gains for this year and 43 percent for next year.
Plus, considering that Tencent is eager to expand the overall reach and capability of WeChat—where many companies are already selling goods—and the hefty stake in Vipshop makes some sense. Tencent needs allies, and with JD.com and now Vipshop in hand, it may well have those allies.
With the number two retailer now having a decent share in the number four—which might well make a play on number three before too much longer—there’s a clear advantage for each of the new shareholders. It’s also the kind of thing that should have current top dog Tmall concerned, especially as we’ve seen how devoted the Chinese are to the mobile payment / mobile shopping concepts. The results of this move will take some time to develop, but it should still be quite the sight when it’s done.