The Afterpay Ltd (ASX: APT) share price went up 25% today as the company welcomed a new investor onto its shareholder register.
Tencent, one of the world's biggest digital companies, had been steadily acquiring a stake in the buy now, pay later business over the past few weeks until it reached the 5% disclosure ownership level.
What do the two businesses have to gain?
The Asian business has clearly been following Afterpay for some time. The coronavirus share market selloff seems to have caused Tencent to want to swoop in on the low Afterpay share price. But Tencent isn't purely an investment fund. It can offer something to the businesses it invests in.
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."
Aside from getting a pleasing vote of confidence for its share price, Afterpay could use Tencent as a way to launch into Asia, perhaps even China itself.
Afterpay has clearly shown a lot of appetite for expanding internationally. The US and UK are now two large markets for Afterpay. Canada is the next step.
Is the Afterpay share price a buy?
Afterpay has never been one to suffer a lower share price for long. Even regulatory worries were short-lived for the Afterpay share price.
It's almost back to its all-time high. I'd say that Afterpay is outside of my circle of competence, it's very unpredictable and currently unprofitable. It has so much potential, but how much profit can it end up making? There are plenty of ASX shares I'd rather buy first, particularly at this price.
