Tencent Takes 19.9% Stake in Chinese Local Listing Site 58.com for $736 million

58. com (NASDAQ: WUBA), one of the largest local listing sites in China, announced that Chinese Internet giant Tencent has agreed to invest US$736 million for a 19.5% stake in the company on a fully-diluted basis.

58.com will be integrated into Tencent properties that include QQ IM, news portal QQ.com, QQ Browser and, the most encouraging, the company’s flagship mobile app WeChat (or Weixin in Chinese).

With more than 300 million active users using it for mobile communication, sharing content, reading articles from public accounts, and services from businesses, WeChat has been exploring potential in m-commerce.

Its parent company Tencent has taken stakes in Chinese leading online retailer JD.com and ratings & reviews service Dianping. JD now operates the Shopping channel on WeChat that users are able to purchase goods provided and make payments through WeChat Payment.

Dianping’s group-buying service has been integrated into WeChat. Similar to it, it is expected 58’s local listing service will be available on WeChat soon. Both Dianping and 58.com fall into the category of online-to-offline where big Chinese Internet companies such as Alibaba and Baidu are grabbing the land. Tencent’s recent investment in mapping company NavInfo is expected to help build its online-to-offline business too.

Also, Tencent has bought stakes in other Chinese tech companies in order to strengthen foothold in the mobile Internet market. The stake in Sogou is for mobile search and many other mobile products.

The listing service 58.com offers is similar to the Craigslist’s, but, different from the latter’s business model, a larger part of the revenues 58.com makes, 57% in Q1 2014, is from membership fees charged to merchants instead of paid ads. What it comes to paid ads, the company launched a real-time bidding system in the first quarter of 2013.

While it is estimated the top line growth of 58’s and other Chinese Craigslist-like services’ will continue, their expenses in sales and marketing as a percentage of revenues are believed pretty high for an Internet-based business, thanks largely to the competition. After years of competition and consolidation, currently there’re three major local listing services in China, 58.com, Ganji.com and Baixing.com. The first two share similar market share while Baixing has a smaller one.

67% of the total revenues 58.com made in Q1 2014 were spent on sales and marketing, with 26% of the total on advertising. As of December 2013 there were approx. 4000 on its field sales team in many Chinese cities to persuade local merchants to sign up to membership subscription or other services. The company hadn’t turned a profit until the second quarter of 2013, shortly before it went public on the NASDAQ.

It is believed WeChat will direct much traffic to 58.com if it gets integrated into the app like JD.com or Dianping.