Asia’s largest Internet operator Tencent (TCEHY) has invested $214.7 million into JD.com, which is the No. 2 ecommerce company in China. The deal gives Tencent a 15% equity stake. It will also likely boost the demand for the upcoming IPO of JD.com — and, of course, have a big impact on some Chinese stocks.
JD.com is kind of like Amazon (AMZN). Both companies offer a broad assortment of products at attractive discounts using a sophisticated supply chain. This is in contrast to Alibaba, which generally does not warehouse inventory, and is more is similar to eBay (EBAY).
JD.com will be one of the largest Chinese stocks on the U.S. market. The estimated value should be more than $10 billion. But this pales in comparison to Alibaba, which is considered to be worth more than $150 billion.
In other words, the Tencent investment looks like a way for the company to take away business from Alibaba. Consider that Tencent plans to transfer its own ecommerce assets like QQ Wanggou and Paipai into JD.com. There will also be synergy with China South City Holdings, which Tencent took a stake in during January. The firm operates a network of warehouses.
But perhaps the biggest benefit will come from Tencent’s WeChat service. It’s similar to WhatsApp, which Facebook (FB) bought for $19 billion. WeChat has about 272 million active users. In fact, the company recently added ecommerce capabilities to the platform.
No doubt, the ecommerce market is a must-win for Tencent. According to iResearch, the Chinese market is expected to grow from RMB1.3 trillion in 2012 to RMB3.6 trillion ($588 billion) in 2016. That’s a cool 28.9% compound annual growth rate. More importantly, a key part will be mobile, and Tencent is the leader in that market.
But the push from Tencent could have an adverse effect on some other Chinese stocks, as well. If anything, the biggest loser could be Baidu (BIDU). True, the company continues to dominate the search business in China — but that performance is primarily on the desktop. Unfortunately, BIDU has lagged with its efforts on mobile and ecommerce.
And yes, the other loser among Chinese stocks could be Alibaba (the company is expected to go public later this year). By not having its own distribution system, the company is subject to problems with deliveries to customers.
At the same time, Alibaba is a laggard with mobile. The company is playing catch-up, as seen with its investment in Sina’s (SINA) Weibo, which is is similar to Twitter (TWTR). There was also an investment in AutoNavi (AMAP), a provider of Internet mapping technology.
Regardless, the fact is that JD.com will likely be a red hot IPO, making it one of the most popular Chinese stocks on the U.S. market. And Tencent will benefit by taking an additional 5% of the stock at the time of the JD.com IPO. The deal is expected within the next few weeks or so.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.