Naspers shares down 15% in a week
INVESTORS in JSE darling Naspers, which include many unit trust fund managers, index-tracking exchange traded funds and retirement funds, had a rude shock this week when the share dropped to R2 525 on Thursday morning. This was down 15% (from R2 970) within a week and down 33% from its price of R3 750 in January this year.
Naspers’s major holding is Tencent, the Chinese social media and online gaming giant, and one of the world’s largest companies. The drop in the Naspers share price has mirrored a similar drop in the Tencent share, which has tumbled nearly 40% since January.
While the current lack of confidence in Tencent may cause the share to drop further in the short term, Francois Strydom, portfolio manager at Momentum Securities, believes Tencent is fundamentally a good long-term buy.
He says Chinese regulatory concerns about Tencent’s online gaming segment have been cited as a large contributing factor to the share-price decline, “although the gaming segment accounted for only 34% of revenue as stated in its recent quarterly results”.
Strydom says the share is trading at five-year lows on a one-year forward earnings multiple, meaning that despite the downgrades in earnings expectations for the next two years, the share price drop is now providing a cheaper entry point than has been seen in the past five years.
And he says Tencent’s management is showing initiative in focusing on the group’s major growth areas and remaining relevant in the digital age of cloud computing and artificial intelligence (AI).
“At the beginning of the month, Ma Huateng, the chairman of Tencent Holdings, announced an initiative to consolidate its mobile internet (Tencent browser), online media (video and news), and social media (QQ, Wechat) businesses into one segment, effectively consolidating its entire social media and internet content offering into one easy-to-manage segment. Social network revenue alone grew 30% year-on-year in the last quarter.
“Some of the remaining business will also be cut and diced to allow a clear focus for Tencent’s Cloud and AI offering.
“Finally, the advertising sales department across the group will be combined to provide a better model for advertisers going forward. Advertising revenue grew 39% yearon-year in the last quarter.
“This restructure should provide focus across the group and ensure that Tencent remains relevant in the ever-evolving internet era,” Strydom says.