The WSJ reports "Tencent said Friday it will spend $736 million to take about 20% of 58.com , a Chinese site comparable to Craigslist in the U.S., where small businesses and individuals post ads for apartments, used goods, pets and so on. Tencent plans to channel traffic from its various platforms, including the WeChat and QQ messaging services, to 58.com.
"This marks Tencent's fifth major acquisition so far this year—and fits its deal strategy perfectly. The company's overarching goal is to become the dominant platform for people to access the Internet in China, building in particular on the highly popular WeChat messaging app. Earlier this year, Tencent bought minority stakes in online retailer JD.com, real estate listings site Leju and restaurant review application Dianping, similar to Yelp in the U.S., in every case promising integration with WeChat.
In this, Tencent is looking more coherent than archrival Alibaba, whose investments so far this year include stakes in a film studio, a shopping mall operator, a soccer team, and the Singapore postal service.
Aiming to link all its diverse purchases to WeChat makes it more likely that Tencent will be able to benefit from network effects. But so far there is little evidence that these deals are feeding the bottom line—WeChat still makes money primarily through its mobile game offerings".
And the costs of Tencent's acquisitive strategy are mounting. It has spent over $2 billion over the past year on acquisitions, not counting the value of two business units that it traded to JD.com.
Tencent bought its stake in 58.com at a deep 23% discount to the publicly traded share price. That discount, however, is partly flattered by a sudden 14% spike in 58.com shares the day before the deal was announced.
It also doesn't mean 58.com came cheap. The stock has more than tripled since it listed in October last year and even Tencent's discounted price is equivalent to around 90 times forward earnings.
At prices like that, Tencent's serial acquisitions will eventually start to try investor patience.
