JD.com extends access to Tencent’s WeChat for three years with US$220 million in stock

JD.com, China’s second largest e-commerce player, has extended its partnership with tech giant Tencent Holdings for three more years in a deal that will continue to give WeChat users easy access to the shopping platform, helping it maintain a unique advantage in driving online sales.

The renewed cooperation will preserve short-cut access to JD.com on Tencent’s dominant chat app, which has 1.29 billion monthly active users, as the companies continue to collaborate in marketing and advertising, technology services and other fields, the e-commerce firm said in an announcement on Wednesday.

Under the new deal, JD.com promised to issue shares worth US$220 million to Tencent over the three-year period.

“The two parties will leverage this mutually beneficial partnership to provide a better and more convenient shopping experience for users,” JD.com said in the announcement.

Tencent was previously the largest shareholder in JD.com until December, when the social media giant offloaded US$16 billion worth of shares in the e-commerce company to distribute as a special dividend among investors. Tencent’s stake in the company fell to 2.3 per cent from 17 per cent after the transfer.

Tencent first invested in JD.com in 2014, after retreating from its own e-commerce meant to compete with China’s No 1 player in the market, Alibaba Group Holding, owner of the South China Morning Post. At the time, Tencent acquired a 15 per cent stake in JD, which took over the operations of Tencent’s QQ Wangguo and PaiPai shopping platforms.

The companies’ ties grew closer as competition with Alibaba intensified, leading to JD.com enjoying prominent positioning on WeChat. Tencent’s multipurpose super app is an important gateway to many digital services in China, including shopping.

When WeChat users select the option for “shopping” from the app’s Find page, they are automatically directed to JD.com, giving it a so-called Level 1 access point. JD is the only e-commerce company to enjoy that level of access on the app. It is also available through WeChat’s Service page, where it is listed among other online shopping sites such as Pinduoduo and VIPshop, two other Tencent partners. Other online services for things such as food delivery and movie ticketing are also found in this area.

While most of JD.com’s traffic comes from its own app, the traffic from WeChat’s short-cut access offers a high return on investment, Jefferies analyst Thomas Chong wrote in a note on Wednesday.

“We believe the renewal underlines the win-win cooperation between JD and Tencent in the long term,” Chong said.

JD.com’s shares rose 1.19 per cent from the previous close to HK$254.8 by mid-day Thursday, while Tencent continued its losing streak this week with a 1.64 per cent fall to HK$359.

Tencent lost US$7.4 billion of market value on Monday after Prosus, its major Dutch-listed shareholder, announced a plan to trim its stake in the WeChat operator to fund a stock repurchase programme. Prosus separately completed the sale of 131 million shares in JD.com, which it obtained from Tencent as a special dividend payout earlier this year.