Internet the only way forward for cash-flush Naspers
Exit from MultiChoice part of transformation into global tech giant
● When Naspers gets rid of pay-TV business MultiChoice, the Cape Town-based group will become a pure-play internet company comparable to a mash-up between Dutch ecommerce website Booking.com and Japan’s SoftBank.
Naspers started out as publisher of Dutch-language newspaper De Burger more than a century ago, but thanks to its 2001 bet on China’s Tencent — funded largely by subscriptions to its pay-TV operations — the group has morphed into one of the world’s largest internet companies.
Save for its relatively inconsequential Media24 business, which still publishes some newspapers and magazines, the online transition will be all but complete when Naspers unbundles MultiChoice onto the JSE in early 2019.
“It’s an important step and it makes the Naspers story simpler — now we’re a consumer internet company, period,” CEO Bob van Dijk tells Business Times.
For years, Naspers has relied on MultiChoice’s steady flow of dividends to lift its ecommerce businesses, such as OLX Group, off the ground.
But with the e-commerce segment now edging closer to profitability, making it less reliant on funds from the satellite-TV business, Naspers is ready to leave its past behind, according to Van Dijk, who adds that the group is cash-flush after trimming its stake in Tencent and offloading its shares in India’s Flipkart.
MultiChoice is also ready to stand on its own two feet, he says, since it is in a healthier position after many of its African markets took a turn for the worse when commodity prices collapsed.
Despite competition from streaming services such as Netflix, its prospects are promising because African consumers will not have uncapped, affordable mobile internet for years to come, and even in developed markets people tend to keep both traditional TV and online services.
The separation deal is a windfall for MultiChoice SA’s black investors, who get an additional 5% stake in the company through the Phuthuma Nathi scheme.
The unbundling will also help Naspers to rein in its hefty valuation discount relative to Tencent, says Olwethu Notshe, portfolio manager at Sentio Capital Management.
“It further strengthens the conviction to buy the share as management are heeding the market’s concerns around the discount and are taking steps to address it,” Notshe says.
Post the break-up, Naspers will be left with a group of classifieds, payments and online food delivery businesses that it owns and manages — not dissimilar to the model employed by travel website Booking.com.
But the group is also an investment company that’s in many ways similar in nature to Tokyo-headquartered SoftBank, which has bought minority stakes in promising startups as well as high-profile companies such as e-commerce behemoth Alibaba, ridehailing app Uber, and chipmaker Nvidia.
Incidentally, Naspers also looked at the ride-hailing category years ago, but decided not to take the plunge as it was not sure whether those companies were “locally defensible” against global giants such as Uber, Van Dijk says.
We didn’t have the answers and since we weren’t comfortable we decided not to invest — we might regret it
Bob van Dijk Naspers CEO, on not investing in ride-hailing apps
“We didn’t have the answers and since we weren’t comfortable we decided not to invest — we might regret it.”
With his company now entirely focused on the internet, Van Dijk is criss-crossing the globe in search of deals that others are yet to stumble upon.
Finding another Tencent, however, is like looking for a needle in a haystack.
That deal, which came about after a number of prior investments in the Chinese market flopped, has paid off handsomely. Naspers bought a third of Tencent for just $32m, and its stake is now worth close to R1.8-trillion.
Van Dijk reckons he personally looks at nearly 200 deals a year, and the group as a whole looks at about 1,000.
Dismissing claims that Naspers is little more than a passive investor riding on Tencent’s coat-tails, Van Dijk says he and his management team work closely with the group’s underlying companies.
“I spend a fair amount of my time with the businesses looking at their strategies, so we’re an operator as much as an investor.
“We write business plans and do strategy and operational reviews, which is why I spend such a crazy amount of time on planes just meeting all the companies to see what their growth plans and strategies are.”
Van Dijk says Naspers decided to sell a portion of its Tencent shares, freeing up HK$77bn (about R141bn) in cash, because it had “more ambition than we can fund”.
It is looking for early-stage investments mainly in the classifieds, online food delivery and fintech segments.
Van Dijk says the R1.4bn investment into South African used-car marketplace Webuycars, announced this week, is “the kind of thing we want to use that capital for”.
Naspers is also keen on building out its portfolio of online education companies, he says, adding that whereas other industries have already been digitised, education has hardly changed in decades.
“I think that’s an example of something that will radically change, as will food delivery … Most people still buy stuff in the supermarket and spend lots of time putting it together, but I honestly don’t believe that’s the way we’re going to eat 20 years from now — it’s inefficient and there’s lots of waste.
“So I think technology’s role in people’s lives has already increased a lot, but it’s maybe 5% of the way there. What we’re trying to do is find those areas that will be most impactful in the next few years and invest behind those.”
Van Dijk says Naspers will keep an eye on emerging technologies such as blockchain, the distributed ledger technology behind cryptocurrencies. Blockchain is used to cut out middlemen, and Naspers already has some exposure to it through its investment in crypotocurrency platform Luno.
“In terms of great consumer blockchain applications, I think that’s early stage, but the technology is disruptive enough to change the way things work, so we’re very interested.”
In fintech, Naspers wants to push into the credit business. Its PayU operation, which processes Uber payments in SA, has deep pools of consumer payment data that it can use for lending services.
“So we’ve made a number of investments there and we think we might do more.”
Van Dijk says Naspers, still thought of as a media company by many South Africans, is becoming recognised as a global technology giant. Whereas most of its offshore investors were previously emerging-markets focused funds, it is now attracting the large technology investors. Its shareholder registry is also changing since South African investors — constrained by maximum weightings towards single stocks — are starting to make up a smaller portion of the overall mix. But the group has no plans to list elsewhere, he says, and the business remains keen on SA.