On the eve of Christmas, the U.Sstock market witnessed a sudden surge in the stock price of a relatively unknown travel technology company, drawing attention from investors and analysts alikeThis remarkable rise, it turned out, had deep connections with a well-known giant in the tech industry, Tencent Holdings Limited, which operates under the stock code 00700.HK.

The focus of this financial story was Despegar, a Latin American travel technology firm listed on the New York Stock Exchange under the ticker DESP.USOn December 23, Despegar's stock price skyrocketed by an astonishing 32.83% to reach $19.46, catapulting its market capitalization to $1.633 billionThe catalyst behind this impressive jump was the announcement of a definitive merger agreement that involved Tencent's major shareholder, Prosus, a subsidiary of Naspers based in South Africa.

The details of the merger were remarkable

Prosus offered to buy Despegar for $19.50 per share in an all-cash transaction, valuing the travel agency at a staggering $1.7 billionThis acquisition represented a 33% premium over Despegar’s closing price of $14.65 just one day earlierThe significant premium reflected investor enthusiasm and confidence in the deal, causing the stock price to rise substantially.

This deal is anticipated to close in the second quarter of 2025, after which Despegar will be delisted from the New York Stock ExchangeHowever, an intriguing question arises: Why did Prosus, which had previously decreased its stake in Tencent as part of a broader financial strategy aimed at shareholder returns, now decide to acquire a travel agency at such high valuation in cash? The motive behind this apparent contradiction is worth exploring.

Despegar was established in Argentina in 1999 and made its debut on the NYSE in 2017. Over two decades, the company has expanded its operations to 19 markets across Latin America, with Brazil being its largest market

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Despegar offers a multi-channel B2C platform that connects with users through web interfaces, mobile applications, and conversational methods, largely enhanced by its AI assistant, SofiaAdditionally, it has a burgeoning B2B segment, providing packaged and customizable solutions to partners like banks, airlines, and retailers.

According to data from Prosus, Despegar currently processes more than 9.5 million transactions annuallyThe company recorded a total order value of $5.3 billion in 2023, generating revenue of around $706 million, alongside an adjusted EBITDA of approximately $116 millionThese robust figures showcase Despegar's notable recovery from the downturn it faced during the COVID-19 pandemic.

Prosus’s management elaborated on the strategic rationale behind acquiring Despegar, indicating that it is part of their vision to create a high-quality service ecosystem

The acquisition broadens Prosus's footprint in the Latin American market and allows it to leverage existing synergies with its current operations, which also include the popular food delivery platform iFood with 60 million customers and the event platform Sympla.

In observing Despegar's rebound, financial analysts noted that the company’s performance in the third quarter of 2024 revealed a remarkable monetization rate of 14.6% and an adjusted EBITDA that reached a new high with a margin potentially topping 24.77% in that quarterFactors such as the ongoing exploitation of Latin America's tourism resources, lower local currency valuations, and the resurgence of international travelers are anticipated to sustain Despegar's growth trajectoryProsus clearly sees potential in Despegar’s strong recovery momentum.

Interestingly, while it may seem that Prosus has significantly reduced its holdings in Tencent, the latter remains a cornerstone of its investment portfolio

As of December 23, 2024, the valuation of Tencent in Prosus’s portfolio stood at an impressive $120.3 billion, accounting for 77.71% of Prosus’s total asset value of $154.8 billionThis statistic highlights the enduring significance of Tencent to Prosus’s financial health.

In fact, the assets within the Prosus portfolio are strongly focused on consumer services, particularly in the food delivery sectorThe company has made noteworthy investments in several major food delivery platforms, including Meituan in China, Swiggy in India, Delivery Hero in Germany, and DoorDash in the U.SThese public investments in food delivery companies alone are estimated to be worth around $11.7 billion, supplemented by investments in private food delivery firms totalling about $5.7 billionCumulatively, this franchises Prosus's presence in consumer services, reflecting a total of $17.4 billion that encompasses 11.24% of its assets.

Moreover, Prosus’s holdings extend beyond food delivery, encompassing platforms in education, fintech, and online advertising—sectors that typically exhibit high consumer interaction and demand