Tencent invests $736m in VC-backed Chinese classifieds site

Hong Kong-listed Tencent - best known for online messaging services WeChat and QQ, as well as gaming, social networking and online payment businesses that have been launched off these platforms - has agreed to buy 36.8 million Class A and B ordinary shares in 58.com at $20 apiece. Each ordinary share represents two American Depository Shares.

A portion of the proceeds have been earmarked for repurchasing ordinary shares from pre-IPO shareholders. But 58.com also stressed that the partnership will be strategic. The two companies will use each other as the preferred partner in local services and they will work together in building out online-to-offline services (O20), according to a regulatory filing.

For 58.com, which is a platform for ads covering property rental, recruitment, second hand goods and cars, along similar lines to Craigslist, there is the prospect of consolidating its market leading position by capturing traffic from Tencent's services.

"Integration will “further expand 58.com's user base, improve the user experience by allowing users to access social tools to find recommended merchants, and help users improve the level of communication between each other and with merchants,"” the company said.

Founded in 2005, 58.com received $1 million from SAIF Partners in 2006 and an additional $5.77 million two years later. SAIF then re-upped in March 2010 with a $15 million round alongside DCM. DCM returned later that year to invest another $45 million together with Warburg Pincus. The company raised a higher-than-expected $187 million through its IPO and the stock was trading at a more than 200% premium to the offering price as of Friday.

The company's annual report for 2013 indicates that Warburg Pincus, SAIF and DCM own 17.9%, 14.7% and 13.5% respectively. Revenue - primarily derived from memberships and online marketing services - came to $145.7 million in 2013, up from $87.1 million in 2012 and $41.5 million the year before that. 58.com turned profitable in 2013, generating net income of $19.6 million. This compares to losses of $30.4 million and $83.4 million in 2012 and 2011.

58.com represents the latest in a string of lateral investments by Tencent as it seeks to broaden its business interests and offer more services to its large social user base.

In 2014 alone, the company has acquired a 20% interest in listings and reviews site Dianping, paid $215.7 million for a 15% in JD.com ahead of the e-commerce platform's US IPO, re-upped in taxi booking service Didi Dache, bought a 15% stake in real estate information platform Leju for $180 million and picked up an 11.3% interest in mapping company NavInfo for $187 million.

Alibaba Group - which along with Tencent and Baidu comprises the dominant force in Chinese internet - has also been acquiring assets aggressively in order to diversify its product offering. For example, the e-commerce giant has aligned with Kuaidi Dache, Didi Dache's direct rival, and AutoNavi, a mapping service that competes with NavInfo. Most recently, Alibaba took full ownership of VC-backed mobile-browser firm UCWeb.

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• Topics
• Greater China
• PIPEs
• Technology
• Consumer
• Venture
• PIPE
• Venture
• Tencent
• China
• TMT
• Consumer
• DCM-Doll Capital Management
• Warburg Pincus Asia
• SAIF Partners