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Why E-House (China) Holdings Limited Popped

By Brian D. Pacampara, CFA - Mar 21, 2014 at 1:26PM

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Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese real estate services company E-House (China) Holdings Limited (NYSE: EJ) soared as high as 15% on Friday after selling a 15% equity interest in its real estate subsidiary, Leju Holdings, to Internet services company Tencent Holdings for $180 million.

So what: E-House popped earlier this month after signing a development deal with Tencent, and today's news only reinforces the strength of their strategic partnership. In fact, Tencent said it will also subscribe additional shares in Leju's proposed IPO, ensuring that it will be able to maintain its 15% equity stake on a fully diluted basis.

Now what: The transaction is expected to close by the end of the month. "Tencent's investment in Leju demonstrates its recognition of Leju's success in O2O real estate e-commerce. We strongly believe in the opportunities in this vast and growing market," said E-House CEO Xin Zhou. "We also look forward to deepening and widening our strategic cooperation with Tencent in the coming years." Given the stock's red-hot performance and industry-topping price multiples, however, much of that potential might already be baked into the valuation.

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