Internet business boosts Naspers
THOSE who criticised South Africa’s largest media company Naspers for getting sucked into a second technology bubble when it snapped up a swathe of internet businesses are eating their words.
For the first time, income from its internet business has outpaced that from its money-spinning pay television arm Multichoice.
This week, Naspers revealed that for the financial year to March, its internet arm bagged R34.6-billion in revenue — the biggest chunk of which (R20.5-billion) came from the Hong Kong-listed Tencent, in which Naspers owns 34%.
Though internet companies have been notoriously slow to make profit, Naspers’ internet arm still produced R6.1-billion in trading profit, marginally behind the R7.5-billion it made from pay television.
What Naspers results do show, however, is the steady decline of profit from its print media division, which includes Media24 and Brazilian magazine publisher Abril.
Media24 produces magazines like Heat, FHM and newspapers like City Press, Rapport and Beeld. The print division made only R743-million in trading profit last year— a 32% drop from the previous year.
The diminishing influence of print underscores Naspers’s growing reliance on the stratospheric growth of Tencent, as well as pay television.
CEO Koos Bekker told Business Times that print would continue to decline, while news would increasingly go online.
“On the day of the Oscar Pretorius murder of his girlfriend Reeva Steenkamp, news24.com had 13 million page views a day, which no print newspaper in this country has ever reached.
“So in moving from print to digital, one hopes to expand one’s audience and attract more eyes.”
The problem is that media companies traditionally make much less money from the internet than they do from print subscriptions.
Bekker said the New York Times newspaper — which provides a good measure of what could be done online — made about a 10th of the money from a digital subscriber as they did from someone who bought a printed newspaper.
“That’s not too far off the mark. As the newspaper goes online, the typical reader spends one-10th of the time reading and you get one-10th of the advertising income. But a salvation could be to expand your reach — if your title now has a print circulation of a hundred thousand, to reach for a million.”
The trick is to monetise online content. Says Bekker: ‘‘It’s hard to charge subscription. If you look at the US, the Wall Street Journal, New York Times and very few others have content that viewers will pay for. Most regional or city papers seem unable to do that.
“I can’t claim to know the formula for success, but the more valuable the content, the greater the viewer’s propensity to pay.”
But while Naspers considers how to keep its print arm in the black, investors keep betting on its profits from the internet and pay television.
The demand for Naspers shares, largely due to the mystique around Tencent, has caused the company’s stock to soar to the extent it is now on a price-to-earnings ratio of nearly 50 — far more pricey than many other JSE companies.
When asked if he considered his company overpriced as this level, Bekker said he had no clue what was a fair value. “All managers believe in their companies. They’re the last people one should ask what a company is worth,” he said.
Analysts at Vestact, a wealth-management firm, said the e-commerce business was growing at a “crackerjack” pace mainly through acquisitive growth.
“This business segment is what [CEO] Koos Bekker sees as the future,” said Sasha Naryshkine and Byron Lotter. “The business will continue to grow rapidly in emerging markets, and to a certain extent be in catch-up mode with developed markets — where Amazon is available as a platform — as any other.”
Despite revenue brought in by the e-commerce business, largely made up of retail websites similar to the US’s Amazon and Naspers’s local kalahari.net shopping site, it posted a R2.2-billion loss compared to R914-million in losses the previous year.
“As we are in the building phase, this segment is presently loss-making and we do not expect profits in the aggregate for several more years,” said Bekker.
Adrian Zetler, an equity analyst at Coronation Fund Managers, says Naspers sees e-commerce as its next pillar of growth, and is thus reinvesting cash flows generated from its past successes — pay TV, Tencent and Mail.Ru — to “aggressively pursue the building of e-commerce platforms in its target emerging markets where e-commerce penetration is still low.
Naspers’ profits were also boosted by the much-hyped listing of Mark Zuckerberg's Facebook last year. This is because Naspers owns 29% of the Russian online company, Mail.Ru, which paid $200-million for a minority stake in Facebook when it was still a fledgling company. This stake grew fivefold by the time Facebook listed on the Nasdaq.