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Tencent E-Commerce Subsidiary May IPO

China Business News, 5/21/12

Wu Xiaoguang, newly-appointed CEO of Chinese Internet firm Tencent's (0700.HK) subsidiary Tencent E-Commerce Holdings, has disclosed that the new company plans to use more flexible management system mechanisms and raise additional capital through a possible IPO in order to add value to its parent company.

Tencent explained its plan for the e-commerce business to operate independently saying "e-commerce has many special characteristics, requiring offline distribution, product development, and other operations in addition to its online component, and needs strong expertise. A spin-off would give the e-commerce business more room to operate."

Wu described Tencent's e-commerce business as evolving in three stages. First came the incubation stage, with the establishment of C2C platform Paipai in 2006 providing a base for Tencent's e-commerce development; the second phase, or the maturation stage, involved incorporation into Tencent's internet business systems product line and adding social networking, while the team found ways to bring traffic to the platform and tentatively expanded into B2B, O2O, and m-commerce. Now, in the third stage, Tencent's e-commerce business has "reached adulthood." Wu added that Tencent will support the e-commerce subsidiary so that it can establish independent operations.

In terms of its business model, Tencent said it expects to take major losses in order to provide long-term support to independent e-commerce firms, and will optimize its platform to ultimately drive profits towards merchants on its open platform.

Editor's Note: For more information on this topic, please see "Tencent Restructures into Six Businesses Groups," MD 5/18/12 and "Rumor: Tencent Adjusts Group Buy Business," MD 4/28/12 issues.

Keywords: e-commerce Internet IPO Tencent business model spin-off 0700.HK Wu Xiaoguang

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