This Chinese Internet Giant Owns Big Parts of Popular U.S. Companies

Do you love using Snap's (NYSE: SNAP) Snapchat with your friends? Are you on the wait-list for a Tesla (NASDAQ: TSLA) Model 3? Are you a music fanatic addicted to your Spotify playlist?

Would you love to own shares in all of these exciting companies, but are holding back because Snapchat trades at a huge 26 price-to-sales multiple, Tesla continues to spend tons of cash it doesn't have, and Spotify is still private?

If that's the case, you may want to look at Tencent (NASDAQOTH: TCEHY) -- my favorite Chinese stock, and a company every investor needs to know -- as it owns stakes in all three companies.

A closeup of someone using a smartphone on which one of Tencent's apps is showing.
A closeup of someone using a smartphone on which one of Tencent's apps is showing.

Image source: Tencent.

What is Tencent?

Tencent is the fifth-largest company in the world by market cap. The company's core product, I would say, is its WeChat platform. WeChat is the dominant social media platform in China, with nearly 1 billion monthly active users. Users reportedly open the app an average of 10 times a day and spend over an hour per day on WeChat, with one-third spending over four hours per day on the app.

Users can use WeChat to messages friends, make videos, meet new people, engage with coworkers, shop online, make cashless payments, pay bills online, and much more. It is basically China's portal to all things on the internet.

Tencent is also a dominant video game publisher, with its Honour of Kings game sporting over 60 million daily active users. Tencent is also the majority owner of Tencent Music, China's leading music streaming app, has started an online bank called Webank, and is majority owner of China's largest online publisher, China Literature, which just went public on the Hong Kong exchange.

A core competency of Tencent is its investment prowess. In fact, its huge gaming segment came courtesy of its 2011 acquisition of U.S. game studio Riot Games. This year it put money into Tesla, Snapchat, and Spotify.

Eyeing U.S. cool kids

Tesla is an exciting company, but one of the drawbacks to investing in Tesla is that the company is burning through cash as it ramps up Model 3 production and its gigafactory. Tencent sees promise, though, investing $1.7 billion this past March for about a 5% stake. That price equated to about $210 per share, so Tencent is already up 50% on its investment! Of the Tesla investment, Tencent management said [transcript via Seeking Alpha]:

That automobile is becoming a smart device and there will be much more connection between the physical world and the virtual world. So that's the reason we felt we want to partner with the leading company in such field right now in order for us to get on with these capability as well as to figure out whether we can learn something new or whether we can actually build some businesses together.