Tencent bets on Russian market

08:35, April 14, 2010      

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Chinese Internet conglomerate Tencent Holdings Ltd will acquire a 10 percent stake in Digital Sky Technologies, a Russian Internet investment firm and Facebook shareholder, as the company seeks to expand outside its home country.

Tencent, best known for its popular instant messaging service called QQ in China, said that it will pay $300 million for the stake in Digital Sky Technologies (DST), which has a 3.5 percent stake in the US social networking site Facebook.

"The investment allows us to benefit from the fast-growing Internet market in Russia, as well as to leverage our technical and operational know-how to strengthen the leadership position of Digital Sky," said Martin Lau, Tencent president, in a statement.

The company also said it will develop a long-term strategic partnership with Digital Sky and the companies in which it has invested, as well as "explore further business cooperation with them".

Tencent provides free instant messaging services for hundreds of millions of Chinese users and profits from selling virtual items and other online value-added services.

The company also enjoys a strong revenue stream from its online gaming business and manages a portal website as well as an online search engine.

Last month, the company reported $1.8 billion in revenue in 2009, with a gross margin of almost 70 percent. That made Tencent one of China's most profitable Internet firms.

According to the deal, Tencent will get roughly a 10.26 percent stake in Digital Sky and 0.51 percent voting power in the Russian firm.

Dick Wei, analyst for JP Morgan in Hong Kong, said in a report that Tencent's latest move will expose the company to the fast growing Russian market. "Tencent is positioning itself to benefit from global Internet growth," he said.

Wei noted that Tencent will also benefit if the company is able to strengthen cooperation with Digital Sky's portfolio companies, which includes e-mail firm mail.ru, social gaming company Zynga, online payment company OE Investments as well as a recruitment site and an e-commerce platform.

Last week, media cited unnamed sources as saying that Tencent, Digital Sky and Russians Prof-Media were in competition to acquire AOL's instant messaging platform ICQ.

It was also reported earlier this week that Facebook may also considering enter the China market, although US search engine Google last month shut down its domestic website and rerouted traffic to Hong Kong.

Source: China Daily


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