The Afterpay Ltd (ASX: APT) share price has rocketed out of the gates this morning, opening 30% higher at $38. This comes following an announcement over the weekend that Chinese tech giant Tencent Holdings accumulated a 5% stake in Afterpay.
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Tencent builds substantial shareholding
Tencent spent late March and April acquiring its 5% position in Afterpay, worth around $390 million going off Friday's closing price of $29.16. Tencent purchased Afterpay shares on the market at a price range of between $17.11 and $31.30.
Afterpay was quick to welcome its newest substantial shareholder with Anthony Eisen and Nick Molnar, co-founders of Afterpay, commenting that Tencent provides the company with the opportunity to "learn from one of the world's most successful digital platforms business" and "tap into Tencent's vast experience and network".
From Tencent's perspective, its chief strategy officer James Mitchell also commented that it has actively been investing in pioneering fintech companies around the world that provide unique insights into emerging fintech services.
In the case of Afterpay, Mitchell commented, "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 in terms of Afterpay's customer centric, interest free approach as well as its integrated retail presence and ability to add significant value for its merchant base".
Tencent's fintech kingdom
Tencent has arguably reached a peak market share as part of a duopoly with Alibaba. While it has launched its Chinese payments platform 'WeChat Pay' in most major regions, it does not expect that consumers across the world will adopt WeChat Pay instead of other global competitors such as Apple Pay, Google Pay or other local apps.
Instead, Tencent has taken many strategic stakes in start-ups. This year, Tencent led a US$45 billion funding round for French mobile payment app, Lydia. The French company has moved beyond its initial peer-to-peer payment services, helping users manage their money in real-time. Multiple accounts can be created to help people separate funds as well as share accounts between users.
Additionally, Tencent also co-led a US$115 million funding round for French business-to-business challenger bank Qonto, and even backed Melbourne-based fintech start-up Airwallex, a new foreign exchange payment network.
Evidentially, Tencent has the appetite and eye for 'up-and-coming' fintech players. The question is… what happens next?
What now?
We cannot guess what the medium to long term implications will be of this substantial shareholding. However, as seen by today's share price move, it will certainly be bullish for the Afterpay share price in the short term.
Afterpay will still be Afterpay – the leading buy now, pay later player that continues to go from strength to strength, even amidst the coronavirus pandemic.
