What happened

Shares of Baozun (NASDAQ:BZUN) rose significantly on Tuesday after the Chinese e-commerce company announced it would form a strategic partnership with iClick Interactive Asia Group (NASDAQ:ICLK), a Chinese digital marketing technology company. It will also make an investment in the company. A short squeeze may have also helped drive the shares higher.

At the close of trading, Baozun stock was up 35%, while iClick had gained 3.4%.

The word "Baozun" spelled out using its customers' logos

Image source: Baozun.

So what

As a result of the agreement, Baozun will own 4% of iClick's shares outstanding and control 10% of its voting power.

The companies said they entered into a "strategic cooperation framework agreement" and will collaborate on a closed-loop e-commerce service model, focusing on areas like digital marketing, customer service, and fulfillment. That complements Baozun's core business of providing e-commerce services such as marketing, fulfillment, and IT for multinational companies like Microsoft and Nike. Also key in the deal is that both companies will develop a private domain traffic platform for Tencent, the tech giant and owner of the super-app WeChat.

"We are very excited about this opportunity for investment and strategic cooperation to create synergies for both companies," said Baozun CEO Vincent Qiu. "Baozun and iClick share the same ambition to create state-of-the-art e-commerce solutions for our brand partners in the fast-growing brand e-commerce sector in China."

Now what

It's notable that Baozun shares soared while iClick's were trading mostly flat as such partnerships tend to favor the target of the investment -- in this case, iClick -- rather than the investor. Baozun also opened the trading day up only modestly, but gained gradually over the course of the session, indicating that a short squeeze may have helped push the price upward. Several stocks have jumped on short squeezes this week as traders have targeted heavily shorted stocks. Baozun's trading volume was six times its normal level, also a sign of a squeeze in progress. Nearly 20% of its shares were sold short as of the end of December.

Baozun has long seemed undervalued. The stock missed out on the broader boom in Chinese e-commerce over the last year that lifted peers like JD.com and Pinduoduo, but the news of the iClick partnership alone doesn't seem to justify a 35% gain.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.