China’s Tencent Holdings buys a stake in Spotify before that company’s IPO

China’s leading Internet gaming and entertainment company Tencent Holdings (TCEHY) has swapped stakes with music streaming company Spotify. Tencent Music Entertainment (TME), the unit of Tencent Holdings that manages its music streaming and karaoke services, will make an undisclosed minority investment in Spotify, TechCrunch has reported. Spotify will buy a similar stake in Tencent Music Entertainment. After that transaction, parent Tencent Holdings will make its own investment in Spotify by purchasing shares from current investors.

Spotify is expected to go public in 2018 in a highly anticipated IPO. Tencent Music Entertainment is also expected to go public within the year in an IPO, potentially in Hong Kong, at a valuation above $10 billion. Another Tencent Holdings unit, China Literature, the company’s e-publishing subsidiary, went public last month.

The move by Tencent is part of the company’s efforts to move out of its Chinese markets (where it owns the country’s top messaging app WeChat) through acquisitions of leaders in local markets. Tencent has invested in India’s e-commerce portal Flipkart, Hike (a messaging app), Practo (a health portal) and Ola, a rival to Uber in the Indian market. In the United States Tencent has struck deals with Tesla (TSLA) and Snapchat (SNAP). Tencent has also used acquisitions to become the largest gaming company in the world.

Earlier in the year TechCrunch reported that Tencent Holdings was in talks to acquire Spotify. Those talks broke down and instead the companies have exchanged equity. The Wall Street Journal is reporting that each company’s stake would be less than 10%.

Tencent is a member of my long-term 50 Stocks Portfolio. Tencent Holdings is up 92.3%, as of the close on December 8, 2017, from my initial buy on February 14, 2017.