Did Tencent and JD.com Just Alibaba-Proof Vipshop?

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Vipshop Holdings Ltd. (NYSE: VIPS) saw its shares explode early on Monday after it was announced that Tencent Holdings and JD.com Inc. (NASDAQ: JD) would be taking a massive stake in the company. Specifically, Tencent and JD.com will invest an aggregate amount of approximately $863 million in cash in Vipshop at the closing of the transaction.

Excluding Monday’s move, Vipshop shares had underperformed the broad markets in 2017, with shares down 23% year to date.

What stands out about this transaction is that the total investment of $863 million in cash precipitates an addition of roughly $2.2 billion in market cap, reaching a total of $7.2 billion.

Upon the closing, Tencent and JD.com will own, approximately 7.0% and 5.5%, respectively, of Vipshop’s total float.

Also under the terms of this agreement, Tencent will grant Vipshop an entry on the interface of Weixin Wallet, enabling Vipshop to utilize traffic from Tencent’s Weixin platform, and JD.com will grant Vipshop entries on both the main page of JD.com’s mobile application and the main page of its Weixin Discovery shopping entry and will assist Vipshop in achieving certain GMV targets through JD.com’s platform.

By allying with these two big players in China it seems like Vipshop is warding off the likes of Alibaba Group Holding Ltd. (NYSE: BABA). While Tencent is currently Asia’s most valuable company with a market cap of $473 billion, Alibaba’s market cap totals $446 billion. And while it has been at war with Alibaba over the fates of Chinese consumers, this move into Vipshop is looking to gain another strategic outpost against Alibaba.

Martin Lau, President of Tencent, commented:

We are pleased to become strategic investor in and partner with Vipshop. We look forward to providing Vipshop with our audiences, marketing solutions, and payment support to help the company provide branded apparel and other product categories to China’s rising middle class. We already see substantial demand from our users to discover, discuss and purchase branded apparel in our applications, and we believe that connecting our users more deeply to products on Vipshop’s platform will enrich their online experiences while benefiting Vipshop.

Shares of Vipshop were last seen up about 44% at $12.17, with a consensus analyst price target of $11.47 and a 52-week range of $7.79 to $15.49.

JD.com shares were trading up about 3% to $41.46. The stock has a 52-week range of $25.25 to $48.99 and a consensus price target of $50.56.

Alibaba traded at $173.35 a share, in a 52-week range of $86.01 to $191.75 and with a consensus price target of $208.91.

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