Tencent slump hurts Naspers
June 29, 2023
By Chris Forrester
South Africa-based Naspers has reported a 78 per cent collapse in profits. Naspers has been badly hurt by the much lower contribution from China’s Tencent which is responsible for the bulk of earnings and revenues for Naspers.
Naspers, which has its global investment business housed in Amsterdam-listed Prosus, draws over two-thirds of its revenue from its Chinese holdings in Tencent.
Its investment in Tencent, where it owns more than a quarter (26%) of the company, also masks losses Naspers makes on an array of investments spanning 100 countries and businesses ranging from online classifieds to food delivery, fintech to education.
Tencent’s revenue was down 1 per cent in the year to the end of December 2022, with online advertising down 7 per cent and games down by 3 per cent.
Naspers posted revenue of $6.8 billion (€6.2bn) and its Dutch losses from e-commerce businesses including classifieds, fintech and food delivery came to $639 million.
Naspers, in one of the most lucrative investments ever made, bought 46.5 per cent of the Chinese software business in 2001 for $36 million. It still owns some 26 per cent. That initial stake is now worth well over $100 billion as Tencent has grown to become a technology and entertainment powerhouse, with interests spanning film, gaming, social media and ecommerce.
One change is in its operational structure. Naspers told investors that it will unwind a complex set of cross-holding shareholdings in each other that had threatened to impede stock buybacks funded by sales of the Chinese tech group’s shares. Naspers says that Prosus would exit a shareholding in its Naspers parent that the company recognised “is widely seen as negative by shareholders”.
Naspers will still control Prosus because of its super voting ‘golden shares’.
Investment analysts from Jefferies say they like the proposed new structure. “We like the transaction and see benefits to it. However, we now see Prosus as a simplified, but still complex conglomerate and argue that a discount to NAV should continue to exist. We decrease our Jefferies discount to Net Asset Value from 40 percent to 35 percent and upgrade our PT from €67 to €74, but maintain our ‘Hold’ rating.”