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Tencent just bought 5% of Afterpay, is the share price a buy?

Is the Afterpay Ltd (ASX: APT) share price a buy after Tencent just bought a 5% stake of the buy now, pay later (BNPL) company?

What happened to the Afterpay share price?

There hasn’t been any reaction yet because the market had shut. On Friday night Afterpay announced that Chinese internet giant Tencent had taken up a substantial shareholder stake of the BNPL business.

Tencent is listed on the Hong Kong Exchange. It’s invested in a wide variety of different services like gaming, media, digital entertainment, online advertising, fintech and cloud users. You may know Wechat or Weixin Pay, which is apparently the leading mobile payments platform in China.

Tencent has bought just over 13.5 million shares. It has been steadily building its stake since 27 March 2020. The lowest Afterpay share price it bought at was $17.11 on 30 March 2020. The highest price it has paid was $31.3 million on 30 April 2020. So, most of its purchases have already made decent money. It has recovered strongly since the initial coronavirus sell-off. 

Why did Tencent buy shares?

Tencent Chief Strategy Officer James Mitchell gave us a bit of an insight:

“Outside China we have actively invested in pioneering FinTech companies, providing us with unique insights into emerging FinTech services.

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

Did Afterpay make any comments?

Yes. Both Anthony Eisen and Nick Molnar, the co-founders of Afterpay, commentated:

“We feel very privileged to welcome Tencent as a substantial shareholder in our business. Being able to attract a strategic investor of this calibre is extremely rewarding and is a testament to our team and the strength of our differentiated business model.

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

“We remain focused on delivering value for our new and existing shareholders over the long term.”

Despite the market sell-off, the Afterpay share price is still up 8.6% over the last 12 months. 

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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