• by Gavin O'Malley , Staff Writer @mp_gavin, November 9, 2017

What does Tencent know that we don’t?

Over the past quarter -- as investors continued to unload Snap’s stock, and analysts thought up colorful language to trash the company -- we now know that the Chinese tech giant gobbled up a roughly 12% stake in Snap.

The news came to light on Wednesday in a quarterly filing with the Securities and Exchange Commission.

Just a day earlier, the market was spanking Snap for reporting its third consecutive losing quarter. During the period, the struggling social messaging service racked up revenue of just $208 million -- a net loss of $443 million -- and, worst of all, only 4.5 million new daily active users.

Even more troubling, Snap CEO Evan Spiegel announced plans to completely redesign the flagship Snapchat app, which he warned would not produce rapid business results.

“There is a strong likelihood the redesign of our application will be disruptive to our business in the short term,” the young CEO said in a statement.

Characterizing the change as a real “risk,” Spiegel admitted: “We don’t yet know how the behavior of our community will change when they begin to use our updated application.”

Did Tencent learn of this decision on Tuesday evening, like the rest of us? Most likely -- but, based its past couple quarters, it was already clear that Snap was struggling to scale its community, and turn its popularity among young users into profits.  

Poor quarterly performance after poor performance has sent Snap’s stock southward, which Tencent likely saw as an opportunity.  

Along with online payment platforms and games, Tencent owns the WeChat messaging app, which has obvious parallels to Snapchat. For that exact reason, perhaps, Tencent invested about $60 in the startup then known to the world as Snapchat, in 2013.

Offering a glimmer of hope, some analysts I spoke with on Tuesday suggested that Snap could simply be suffering from unfair comparisons to Facebook.

“My optimistic side likes to think that the past three quarters since Snap’s IPO are helping to set expectations regarding reasonable growth rates for new advertising-driven businesses -- expectations that have been thrown for a loop due to Facebook's unprecedented success,” reasoned Forrester analyst Melissa Parrish.

This past quarter, Snap blamed revenue deceleration on an increased reliance on programmatic ad sales. In fact, 80% of impressions were delivered programmatically in the third quarter -- up from 0, last year.

Snap said this caused advertisers to shift from direct sales to unreserved auctions, which reduced CPM-based pricing by about 60%, year-over-year.

“It makes perfect sense that moving to an auction-based environment would drive down CPMs, and the extent to which that will happen is hard to predict,” Parrish said.

Yet nearly every Snap watcher I’ve heard from over the past 24 hours had mostly negative things to say about the company.

That included Ian Baer, Chief Strategy Officer at full-service marketing agency ‎Rauxa. “From an advertiser’s standpoint, it’s tough to recommend Snapchat right now beyond its obvious cultural relevancy,” said Baer.

“When faced with the opportunity to include Snap in brand campaign recommendations, we’re finding most often it’s smarter and easier to recommend Instagram," he added. "From a targeting and analytics standpoint, as well as overall market trends, Instagram can deliver the same audience in a more stable, predictable way.”

At least for the moment, however, Tencent is clearly holding out hope that Snap can regain its groove.