Prosus’s Russian PR disaster
The company has come under scathing fire from a Ukrainian PR monitoring group over its failure to break ties with its lucrative Russian internet assets
Creating the most valuable company on the JSE doesn’t automatically win you friends, it seems. Over the past six or so years Naspers has no doubt become accustomed to being harangued by one or other individual or group, whether it be shareholders, stakeholders, analysts or fund managers.
Now it’s picked up another haranguer. An organisation called the Ukrainian PR Army has launched a scathing attack on the apparent failure by Naspers/Prosus to terminate or even suspend its links with the Russian classified ads website Avito. Worse still, the PR Army tells the FM, Naspers/Prosus is doing nothing to moderate the ads on Avito’s website, including some for the recruitment of mercenaries to join the Russian army.
The PR Army is a recently created group of Ukrainian volunteers who, in their previous day jobs, were involved in the communications industry.
Many of the volunteers are now scattered across Europe and, despite their refugee status, are determined to use their skills in the fight against Russia.
“Not only is recruitment done through Avito, but mercenaries who come back from the war use Avito to sell items looted from the Ukrainian civilians they killed,” says the PR Army. It describes Avito as a multimillion-user ecosystem designed to disseminate information. “Calls for war against Ukrainians and symbols of racism are widespread,” PR Army member Alex Kuprienk tells the FM.
Prosus owns 99% of Avito, one of the most popular classified ad sites in Russia. Avito hosts about 94-million active listings and moderates about 5-million new listings that are posted every day by all kinds of businesses and individuals, according to Prosus.
As it happens, Avito is one of the star performers in Prosus’s portfolio of tech assets, and one whose cash-generating ability comes in very handy given the growing concerns about the group’s traditional cash cow, Tencent. It may be for this reason that Prosus CEO Bob van Dijk and his team were initially a tad reluctant to make any rash moves that might threaten the cash flow from the thriving business.
During a conference call with analysts in early March, Prosus CFO Basil Sgourdos described Avito, which has thousands of employees in Russia, as “an exceptional business with a long track record of profitable growth. In the first half of 2022 it generated more than $300m of revenue and most of the $165m cash inflow from its Russian businesses.”
At that early stage in the conflict, which most people expected to be over within weeks, Sgourdos and Van Dijk no doubt felt
confident enough to remain exposed to Russia. Van Dijk told the teleconference participants that Prosus would continue to run its operations in Russia, including Avito and PayU, as “neither of these is subject to international sanctions and both continue to provide a really valued service for many ordinary Russian citizens”.
Pressed by one of the analysts about the decision to remain in Russia when so many international companies had already signalled their intention to withdraw, Van Dijk replied: “It is days into a terrible, violent episode. And we employ in Avito 4,000 people, who are our people. And they depend for their livelihoods on the business that we run, and the business benefits ordinary Russians.
So for us to rush out and leave those people without their livelihoods in the short term feels like the absolutely wrong thing to do. Over time we will see how this influences us, but we can really not comment on this right now.”
Not only did the war not wrap up quickly, but pressure on “Western” companies to respond grew. By March 24 The New York Times reported that more than 400 companies had withdrawn, at least temporarily, from Russia since it invaded Ukraine. Not just high-profile consumer goods groups and retailers were pledging
action, either. German software company SAP said it was ending its operations in Russia and was focusing on “responsibly managing the impact” on its Russian employees. The big three consulting firms Bain, McKinsey and Boston Consulting Group were also going to wind down their Russian operations. Even Google decided to suspend Russian advertising, including on its search and YouTube products. YouTube said it would globally block all channels associated with Russian state-funded media.
So on March 25 Prosus felt it was time to appear more decisive. It released a statement informing shareholders that its OLX Group (the holder of the Avito stake) had decided to cease all involvement in its Russian operations. “The separation process, which will decouple the company into two independent entities, is under way. Avito will operate as an independent Russian entity run by a local management team and governed by its own board of directors,” said Prosus.
Surprisingly, this indication of intent was sufficient to secure top-level acknowledgment from the Yale School of Management, which is keeping a record of all the companies responding to the Russian invasion. By early May almost 1,000 companies had undertaken to curtail their Russian operations. Yale assigned those companies ratings of A to F depending on the level of withdrawal from Russia, with A awarded to companies that made a clean break or permanent exit from Russia and F to those that are digging in and making limited reductions to their Russian activities. To Prosus, they gave an A.
Certainly the PR Army is not persuaded, either by the objective of the decoupling or that it is indeed under way. Olivia Newton, one of the refugee volunteers who has made her way across Europe from Kyiv to Spain, tells the FM there is absolutely no sign of efforts by Prosus to sell down its stake. “Volunteers have spent a lot of time looking for at least some traces of attempts at selling, liquidation, dividing, or any other ways of ceasing the ownership of the classified business,” says Newton. They have found nothing.
In a response to a query from the FM about the current situation and the existence of the disturbing ads, a spokesperson for Prosus says: “To our knowledge, the Avito site hosts no advertisements for mercenaries or frontline military positions.” All posts on the platform are required to meet Avito’s listing policies, says Prosus. This includes no calls for aggression, no offensive language, no weapons for sale and no content which is illegal.
Prosus blames the mercenary ads on the hacking of a user account that was historically used to sell baby products. “This account was compromised with an IP address outside of Russia, and a frontline military job was then posted from that account,” says Prosus. But the PR Army insists it was not a one-off instance of hacking.
This week the Prosus spokesperson confirmed to the FM that Prosus would have “no involvement in the day-to-day operations of Avito and will neither invest further nor seek to benefit economically from its interest in Avito under these circumstances”. The decoupling is well under way, it says.
But what that actually means is unclear. Prosus, via OLX Group, remains the undisputed owner of 99% of Avito. As far as the PR Army is concerned, that means Prosus is still very much in the control seat.