Tencent’s fee potential keeps Naspers buzzing
THINGS just keep getting better for Naspers. This week the share price, which looked so vulnerable when it passed the R1 000 mark in December 2013, continued to steam towards R2 000 as investors came up with lots of reasons why the sky is the limit for the media and e-commerce group.
Currently the best reason could be the latest buzzword to hit China’s hyperactive internet community — O2O, or online-to-offline business activity.
Beijing industry sources estimate success on this front could boost valuations of internet stocks such as Baidu, Alibaba and Tencent by as much as 20%. Naspers has a 35% stake in Tencent.
For technophobes, O2O essentially involves using your smartphone to buy something. Although that is far from new, what is new is the ability of Baidu, Alibaba and Tencent to take a fee from the business that is enabled by their various services.
“Most internet companies have traditionally made money from advertising; in future they want to take a slice of the business they create. That’s what O2O is about and why it is so exciting,” said an executive of one of the big three Chinese players.
Book and pay for a flight, a cinema seat, a pedicure, a hotel visit, clothes or a meal using the sites and, in the O2O world of the not-too-distant future, the tech facilitators will receive a commission from the business they have helped to make possible.
For the big three players the potential is enormous. E-commerce represents a much higher percentage of GDP in China than anywhere else.
“People latch onto technology much quicker here than in any other country; e-com- CHITCHAT: A man takes a photograph of a counter promoting WeChat, a product of Tencent merce is part of everyone’s life here,” said the executive, noting that the country’s recent history had precluded the development of a traditional retailing sector.
“It was easy to skip to online,” he said. “These companies are looking at everything, not just books, flights and games but healthcare services and financial products, they have extensive … information on the 600 million, and growing, smartphone users.”
For now at least the big three have the backing of the Chinese government, which sees them as champions of the new economy and symbols of China’s great innovation and entrepreneurship.
The Xinhua news service said Tencent gave a formal undertaking at the end of last year that it would “better manage the comments of [its] users as authorities call for a clean internet”.
An additional incentive for those who are prepared to play by the rules is the lack of competition — Facebook, Google, Yahoo and Twitter are less keen to play that game.
Back home in South Africa there are more modest reasons for the bullish sentiment.
This week’s listing of Naspers printing subsidiary Novus was reasonably well received by investors and highlights the attractions of a business that tends to get overlooked by the hype around its internet-related activities.
There is also the government decision to back unencrypted set-top boxes for digital television; this will help secure Naspers’s effective monopoly in the local pay-TV market.