BIG PLAYERS
Company size by market capitalisation
Apple
Amazon $1.63 trillion
Alphabet (Google) $1.54 trillion
Facebook $896bn
Tencent $735bn
Alibaba $568bn
some reinventing of its own.
Much of the revenue Naspers had 20 years ago does not exist any more. Print media has become more of a conjurer’s trick in cost-cutting than a money-spinner in itself. And the profitable pay-TV business was spun out in 2019 and listed separately as MultiChoice.
Since the early 2000s, the Cape Townbased company has been trying to diversify away from the asset on which it was built: print media. Tencent was an exceptional start, but generally it’s been a steady pivot away from readers and watchers, to buyers, sellers and transactors.
Armed with cash, first from its media assets, and later also from Tencent’s dividend, Naspers embarked on an acquisition spree that has increased in size and intensity. At first, it felt around in the dark, trying to pin a tail on a unicorn. It dabbled in “e-tail”, making decent profits from Allegro in Eastern Europe and Flipkart in India. But in the past few years, Naspers has built its future on three spheres of investment: e-classifieds, online payments and food delivery. The company has recently also pushed deeper into education technology.
This hasn’t happened without criticism. Naspers executives often call Tencent one of the very best investments in the world, but to finance its other ventures, it has had to sell part of this stake.
Three years ago, it sold 2% of Tencent for $10bn; and last month, it sold another 2% for nearly $15bn.
Was this wise? Surely by doing nothing for three years, Naspers could have pocketed $5bn more from the initial sale? The truth is a bit more complicated. The money was used not only to capitalise food delivery start-ups and cashguzzling marketplace businesses, but also to double down on winners such as Europe’s Delivery Hero, which has created substantial value.
In food delivery, Naspers (through Prosus) has made a few very savvy allocations with some real potential. Brazil’s iFood and India’s Swiggy are good examples, and the upside could be immense if they get it right in such populous markets.
But where the company crosses paths
with real tech giants, risks abound.
Facebook’s Marketplace has pulled the rug from under quite a few e-classified businesses, relegating Prosus to niches such as car sales.
And, as Cousins points out, Naspers is not exactly in the top tier of venture investors.
“[It is] just below that. For young businesses, they offer some strategic benefits as an investor, but not necessarily as an operator. It is tough to compete with the billions of eyeballs the likes of Facebook and Google have access to without having to spend money on marketing,” he says.
“Hunting for Unicorns” was the headline of the FM’s cover story on Naspers two years ago. Whether Van Dijk has found any is still not clear.
Though there are increasing signs that revenue from Prosus’s other assets are outpacing earnings growth at Tencent, investors still do not get a detailed enough picture from Prosus’s financial reporting to make a fully informed decision, says Teeling-Smith.
Estimates on the value of Prosus’s portfolio of assets (which include OLX, PayU and Letgo) vary. In total it will be a couple of hundred billion rand, still very much overshadowed by the R3-trillion Tencent stake.
When (or if) these businesses start feeding a steady stream of profit through to Prosus and Naspers, the discount is expected to narrow. But whether it will close entirely, ever, is anyone’s guess.
One effective way to narrow the discount, says Teeling-Smith, would be to give a signal to the market that the full dividend from Tencent will flow through to shareholders.
But that seems unlikely, as Naspers is adamant that it is not merely a passive holder of Tencent. Passing the dividend through, without shaving a bit off for other ventures, would not fit the narrative of trying to find another Tencent.
Chicken or the egg?
Naspers likes to claim a bit of credit for not only latching on to Tencent when it did, but for getting it where it is now.
Bekker and Charles Searle, Naspers’s head of internet investments, are both longtime board members of the Chinese company. And there has certainly been some cross-pollination.
“Obviously we don’t tell Tencent what to do. They are a very capable and competent management team and they stand on their own two feet,” Naspers and Prosus CFO Basil Sgourdos tells the FM.
“Think about it, right: 10 years ago Tencent was just a gaming and social networking company. They had no e-commerce, they had no payments. We actually started investing in those spaces ahead of them.”
Naspers first saw the gap in food delivery in China, he points out.
“Though Naspers started branching out into other e-commerce businesses perhaps earlier than Tencent, it has not always been successful. And in recent years, it has probably gained a lot by learning from Tencent’s model in, for example, food delivery,” says Cousins.
Though Naspers/Prosus is pivoting towards it, it was Tencent that first got going
Naspers, until recently, has kept a firm grip on that [Tencent] stake. They did extremely well not to sell, despite constant pressure ... to unlock value
on this front by investing in online food delivery platform Meituani.
The Chinese company was also quicker to identify other ecommerce opportunities.
Still, there was a time when Naspers was probably the
senior partner.
“Of course, when Tencent picked us [as partners], in its very early stages of development, it picked us because it needed us to help it with certain things: to get to scale, to become a public company, to put in the right governance frameworks, all those type of things. To help it think a little bit about the future,” says Sgourdos.
Interestingly, in a call to investors last month, Tencent’s head of strategy James Mitchell said Bekker had helped Tencent a lot when it comes to regulatory focus.
Bekker, he said, spends a lot of time pushing Tencent to assess ways in which society is evolving, and consider how those changes will affect Tencent’s business.
Predictions can go either way, though.
Tencent might not know what the future holds, but it is clear about what it wants: to grow its share of China’s internet economy in the next decade, says Teeling-Smith.
The virtue of doing nothing
If that’s the future, Naspers must have done something right to achieve such titanic success over two decades. It followed some advice from, well, Titanic: it never let go.
“Naspers, until recently, has kept a firm grip on that [Tencent] stake. They did extremely well not to sell, despite constant pressure ... to unlock value,” says Mattison.
The ghost of another investment haunted the company for a long time. Naspers invested a pretty penny in a US-based interactive entertainment venture, OpenTV. It listed it, saw it climb, then held on as it fizzled out.
There were these fears with Tencent, too. After the share was floated on the Hong
Kong Stock Exchange, some investors feared Naspers would again hold on for too long.
Some hats have certainly been eaten since.
After all, Bekker might not have bet the house on the Tencent investment that Hawinkels brought to him back in 2001 — but it wasn’t nothing.
And at the time, it was a pretty risky investment for Naspers.
“Naspers’s market cap had bottomed out at R2bn after the dot-com crash [of 2000], so making the [R274m] investment in Tencent meant committing a substantial portion of the company’s assets,” says Mattison.
Still, the executive team saw the potential, and managed the relationship with Tencent very well over the years, he adds.
Or, as Hawinkels puts it: “The Tencent team, from our earliest discussions, were happy with the Naspers investment philosophy and the way we thought about our role as shareholders.”
Two decades and a few trillion rand later, those shareholders are certainly happy with Tencent too.