Johannesburg - Fifteen
years ago, a South African media company invested $34m in an
obscure Chinese internet developer. Today that stake is worth $88bn.
Naspers [JSE:NPN], now Africa’s most valuable company, has to do is figure
out how to make money from its other properties: The whole company is
worth only $72bn, less than its stake in Shenzhen-based
Tencent Holdings. Investors aren’t impressed with Naspers’s
operations in pay-TV, newspapers and e-commerce in such countries as
South Africa, Russia and India.
To win them over, Chief Executive Officer
Bob Van Dijk has launched an aggressive push to sell some assets, invest
in others and expand operations such as classified advertising into new
markets. If it pays off, comparisons with Tencent could become more
The valuation gap is an “opportunity for long-term investors who have
done their homework” on Naspers’s e-commerce components, said
Ruan Stander, a money manager at Cape Town-based Allan Gray, which owns
Naspers shares. “The headline accounting numbers can mislead you into
thinking these businesses are failing,” yet they need a period of
loss-making to establish themselves in the marketplace, he said.
On Tuesday, Naspers
said it would combine Ibibo, a travel business in India, with competitor
MakeMyTrip to boost their presence in the South Asian country. Last week, Naspers
agreed to sell Allegro, a Polish online auction site, for $3.25 billion,
saying the sale was “consistent with the group’s strategy to find and unlock value for shareholders.”
Shares rose after both announcements, bringing Naspers’s gains in Johannesburg this year to 7.1%.
READ: Naspers to merge Indian travel business with rival
The company also hired Citigroup Managing Director
Fahd Beg as deputy chief investment officer, people familiar with the
matter said, a move that boosts the company’s team of executives
scouring the planet for the next Tencent-style success story.
To make more money from its operations, Naspers will have to overcome
a threat to its satellite TV business from new competitors and
e-commerce activities that lost $693m in the last fiscal year.
Companies such as classified-ad business OLX operate in 40 countries,
yet only 10 are cash-generative, according to Bloomberg Intelligence
Tal Smoller. Naspers-owned Flipkart may be India’s biggest online
shopping hub, yet the e-commerce market in that country is still
nascent, she said.
“The key to Naspers doing more than merely tracking Tencent’s
performance will be the extent to which they can successfully monetise
these e-commerce assets,” said
Sean Ashton, chief investment officer of Johannesburg-based Anchor
Naspers, which started out as a newspaper publisher in 1910 before
expanding into TV in the 1990s, bought the Tencent stake under then-CEO
Koos Bekker in 2001. Since then, Tencent has developed WeChat, an
instant messaging app that has 805.7 million monthly active users. Even
China’s economic slowdown isn’t hurting its fortunes.
“More advertisers might choose to place ads with Tencent in times of
downturn, since its platform might be more effective than offline
Yu Jianpeng, a Hong Kong-based analyst at ICBC International Research. “One of Tencent’s biggest strengths is the traffic it generates as a
social media platform, making it an attractive game distributor.”
Though Tencent accounts for half of Naspers’s revenue and almost all
its earnings before interest, taxes, depreciation and amortisation, the
South African company does have some successful operations. Its pay-TV
business, Multichoice, has close to 10 million subscribers in 49
sub-Saharan African countries and broadcasts international sports and
hit dramas like “Game of Thrones” and “The Walking Dead”.
Naspers has stakes in about 45 technology and media companies around
the world, including US online-learning provider
Udemy and Souq.com,
known as the Amazon.com of the Middle East. The Dubai-based online
planning to sell a block of about 30% that would give the company
a value of at least $1.2bn, people with knowledge of the matter
said last month.
“Our focus remains on delivering long-term value and sustainable
Meloy Horn, Naspers head of investor relations, said in emailed
comments. “We expect sustained good results and increased contributions
from our fast growing e-commerce operations to rectify the discount” to
But Multichoice faces new competition from entrants such as
Econet, owned by Zimbabwean businessman
Strive Masiyiwa. StarTimes, a fast-growing Chinese rival, has also
enjoyed “rapid growth on the continent by targeting the mass market with
bouquets for as little as $3,” Priscilla Tirvengadum, an analyst at
Dataxis Africa, said in emailed comments.
Slowing sub-Saharan African economies are causing Multichoice
customers to cancel subscriptions that can reach $88 a month. Meanwhile,
increasing availability of broadband has allowed Netflix to start in
South Africa and Nigeria and given internet users the opportunity to
access video over Google and Facebook. Naspers pay-TV CEO
Imtiaz Patel says that’s a concern because they are unregulated.
The video-entertainment unit, which includes Multichoice, lost
288 000 subscribers in the 12 months through March, while trading profit
declined by 17%. The poor performance of the video-entertainment
business prompted S&P Global Ratings to revise to negative its
outlook on Naspers’s BBB- rating, only one notch above junk status.
Patel says Naspers plans to broaden its appeal to those who don’t
want to pay for premium packages. Last year, the company launched its
answer to Netflix, an online video offering called Showmax.
“Our 2016 year was a tough financial year, especially with African
currency devaluations, but we have reviewed the business strategy, moved
the English Premier League football to our lower priced Compact bouquet
and did not implement any price increase for the year,’’ Patel said.
Yet, while Naspers grapples with pay-TV and e-commerce, Tencent goes
from strength to strength. Net income
soared 47% to a record 10.74bn yuan ($1.6bn) in the
second quarter, as the company splashed out on mobile games and content
- prompting user numbers to mushroom and online advertising revenue to
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