Please ensure Javascript is enabled for purposes of website accessibility

Why Vipshop Holdings Shares Skyrocketed Today

By Evan Niu, CFA - Dec 18, 2017 at 12:56PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Tencent and are investing nearly $900 million in the online discount retailer.

What happened

Shares of Vipshop Holdings (VIPS -9.61%) have skyrocketed today, up by 42% as of 12 p.m. EST, after scoring a huge vote of confidence from Chinese tech giants Tencent (TCEHY -3.67%) and (JD -7.03%). The two companies announced they will invest $863 million combined in the online discount retailer.

So what

Both larger companies will be purchasing Class A ordinary shares at a price of $65.40 per share, which translates into $13.08 per American depositary share of Vipshop. Five American depositary shares, which are what trade in the U.S., represent one Class A ordinary share. That purchase price represents a 55% premium over Friday's close.

Asian woman shopping online with a credit card

Image source: Getty Images.

Tencent will purchase $604 million worth of shares, which will bring its total stake in Vipshop up to 7%, while will be investing $259 million, good to bring its total stake up to 5.5%.

Now what

In addition to the investments, Tencent and are entering into business cooperation agreements with Vipshop, getting greater exposure on their respective platforms. Combined, the companies are looking to compete more aggressively with Alibaba.

Both companies will be subject to a two-year lock-up restriction on these new shares, and will be able to appoint a director and an observer to Vipshop's board for that time frame. The director and board observer rights will be maintained if Tencent and hold 12% and 8% stakes, respectively, at the end of the lock-up period, which teases the prospect of future investments.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Vipshop Holdings Limited Stock Quote
Vipshop Holdings Limited
$7.81 (-9.61%) $0.83
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
$42.04 (-3.67%) $-1.60, Inc. Stock Quote, Inc.
$49.58 (-7.03%) $-3.75

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.