Tencent Buys ELong Stake to Expand in Travel, Follows Google

Tencent Holdings Ltd. (700), China’s biggest Internet company, bought a $84.4 million stake in ELong Inc. (LONG) to expand in online travel, following Google Inc. (GOOG)’s purchase of ITA Software Inc.

Tencent acquired a 16 percent stake in ELong to become the online-travel company’s second-biggest shareholder behind Expedia Inc. (EXPE), the companies said in a joint statement yesterday. Expedia paid $41.2 million to increase its stake in Elong to 56 percent, according to the statement.

Chief Executive Officer Ma Huateng is accelerating Tencent’s pace of investments to add applications and services for the company’s more than 300 million users beyond online games, social networking, and Internet shopping. Google last month completed the $700 million purchase of ITA, boosting the global search-engine leader’s ability to parse travel data.

“Tencent and Google both realize they need to go outside their core competencies to ensure they keep growing,” said Billy Leung, who rates Tencent shares “buy” at OSK Securities in Hong Kong. “It’s a good deal for ELong because it gives them access to Tencent’s big user base.”

Tencent, based in Shenzhen, China, fell 2 percent to HK$214.80 as of 10:15 a.m. in Hong Kong trading. ELong surged 13 percent to $16.96 in U.S. trading yesterday.

Online Travel

ELong is China’s second-biggest online travel company behind Ctrip.com International Ltd. (CTRP), according to OSK’s Leung. The Beijing-based company allows users to book 19,000 hotels in 700 cities in China, and also offers air ticket services, according to yesterday’s statement.

Tencent, with more than 674 million active user accounts for its QQ instant-messaging software, will help market ELong’s services, according to the statement. More than 300 million people in China use QQ, with some maintaining multiple accounts, according to OSK’s Leung.

Tencent increased its share of China’s online games market to 29.1 percent in 2010, from 21.1 percent a year earlier, according to research company IResearch. Second-ranked NetEase.com boosted its market share to 15.3 percent from 12.5 percent, the Shanghai-based researcher said.

Tencent will increase spending this year on services including social media, Internet search and e-commerce, Ma said in March. The company, the leading provider of instant-messaging service in China, will also step up efforts to expand overseas, he said at the time.

To contact the reporters on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net; Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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