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The implications of Tencent’s $300 million stake in Afterpay

We look at some of the key implications of Tencent’s recently revealed 5% stake in Afterpay.

Afterpay share price: the wild ride continues

On Monday investors were reminded why betting against Afterpay (APT) can be a hazardous enterprise.

On Friday, after the market close, Chinese tech giant Tencent Holdings revealed it had taken a 5% – roughly $300 million stake in Afterpay.

The up-and-coming tech darling was quick to release its own media statement some 20 minutes later, framing this substantial holding as more of a strategic partnership and collaborative opportunity than anything else.

And unsurprisingly, when the markets opened on Monday, investors were clamouring to get their hands on Afterpay’s stock. At its intraday peak, the Afterpay share price was bid up a staggering 35%.

Things eased off as the session wore on, with APT finishing out Monday up a more modest 23.8% – to $36.10 per share. Optimism around the ‘Tencent partnership’ continued on Tuesday, with the stock rising to $37.68 per share – in the first 30-minutes of trade.

According to ASIC's latest regulatory filing – ending 28 April –approximately 10.2 million APT shares, or 3.83% of the company's outstanding shares, were held short.

Implications of Tencent's stake

Looking at the implications of Tencent’s substantial holding revelation, Afterpay’s co-founders, Anthony Eisen and Nick Molnar said:

'Tencent's investment provides us with the opportunity to learn from one of the world's most successful digital platform businesses.’

Yet likely what perked investor interest the most, was the suggestion of the long-term collaborative potential between Afterpay and Tencent.

Here it was noted:

'To be able to tap into Tencent’s vast experience and network is valuable, as is the potential to collaborate in areas such as technology, geographic expansion and future payment options on the Afterpay platform.'

Tencent's Chief Strategy Officer, James Mitchell, echoed the above sentiment, saying: 'Afterpay’s approach stands out to us not just for its attractive business model characteristics, but also because its service aligns so well with consumer trends we see developing globally.’

Mr Mitchell finished by saying:

'We look forward to a deep and long-term business partnership between Tencent and Afterpay.'

Other bits and pieces

From March to April, Tencent acquired approximately 13.35 million APT shares, at purchase prices of between $17.11 to $31.30 per share.

Going forward and looking at whether Tencent would potentially up its 5% stake, the Australian Financial Review reported that:

‘Bankers reckon it would be unusual for Tencent to make a bigger play for Afterpay, having already crossed the 5 per cent mark and revealed its interest.’

How to trade Afterpay – long or short

What do you make of this news: do you see it as a bullish or a bearish opportunity? Whatever your view, you can use CFDs to trade Afterpay and other tech stocks – LONG or SHORT – through IG’s easy-to-use trading platform now.

For example, to buy (long) or sell (short) Afterpay using CFDs, follow these steps:

  • Create an IG trading account or log in to your existing account
  • Enter ‘Afterpay' or ‘APT’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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