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While the Naspers and Prosus management is correct in saying that the global internet group performed well during the first six months of its financial year, a closer look at the figures shows that most of the growth can still be attributed to its investment in Tencent. This investment, which Naspers made decades ago, continues to work.
“The group performed well, with group revenue growing 32% to $ 13 billion, business profit growing 42% to $ 2.6 billion, and top earnings of $ 1.6 billion,” says Basil Sgourdos, group financial director.
Listen: Sgourdos discussed Naspers intermissions with Nompu Siziba
The comment to the results noted that Tencent’s contribution to the group’s business earnings increased during the six months through September, while the charts included in the Prosus and Naspers earnings announcements show that nearly all earnings growth during the comparable six months came from Tencent.
Naspers results show that while revenue increased 44% to $ 2.5 billion, excluding $ 10.5 billion of investments accounted for in stocks (mainly Tencent), the disclosure of business earnings by segment indicates that nearly all of the earnings still come from investments accounted for in stocks.
| Naspers Trading Profit (Loss) by Segment | |||
| $ million | Six months to September 2020 | Six months to September 2019 | Change |
| Classifieds | 42 | 63 | -33% |
| Payments and fintech | -3. 4 | -35 | 3% |
| Food delivery | -166 | -273 | 39% |
| Etail | 32 | -17 | > 100% |
| Travel | 0 | -19 | 100% |
| Other | -125 | -85 | -47% |
| Total e-commerce | -251 | -366 | 31% |
| Tencent | 3 426 | 2 683 | 32% |
| Mail.ru | 38 | 84 | -55% |
| Total social platforms and internet | 3 464 | 2 767 | 29% |
| Media | -13 | 7 | -286% |
| Corporate | -9 | -8 | -13% |
| Total business profit | 3 191 | 2 316 | 38% |
| Less investments accounted for in equity | -3 278 | -2 458 | -33% |
| Total business profit | -87 | -142 | 39% |
Source: Naspers provisional results, September 2020
Tencent and other investments accounted for in stocks contributed nearly $ 2.8 billion to business profit, an increase of $ 674 million compared to the first six months of the previous financial year.
But Naspers still posted a business loss of $ 153 million as its new ecommerce investments are still suffering losses.
Losses are less, especially in the large and growing food delivery businesses. The food delivery segment reduced its losses by nearly $ 100 million compared to a year ago, as revenue doubled to $ 610 million in the six months analyzed.
It’s a staggering number: the millions of small fees to deliver a pizza, hamburger, or Chinese takeout add up to more than $ 100 million, or a staggering R1.6 billion, per month.
Management notes that business losses in the e-commerce segments were reduced by 22% ($ 94 million) to $ 339 million, primarily due to the $ 96 million improvement in profitability of the food delivery businesses and the first profitable period of online retail, called the Etail Segment.
Impacts of Covid-19
“For the six months ending in September, Etail reported a business profit of $ 10 million compared to a loss of $ 37 million in the prior period. Covid-19 impacts on business earnings included a 64% lower business gain than classified, with Payments and Fintech unchanged from the prior year period, ”management noted.
However, they affirm that both segments registered a good rebound in profitability in recent months.
The formal announcement of the results establishes that the performance of the classified segment in the first six months differed significantly by quarter, and the first quarter was the most affected by lockdown regulations in key markets. Revenues and profitability fell, but user activity recovered strongly to match pre-pandemic levels with a similar improvement in profitability.
Naspers reports that the payments and fintech segment reported good results, despite Covid-19, with revenue growth of 27% to $ 252 million.
It can be argued that the pandemic actually supports a shift to online payments and financial technology, as reported by many other companies.
“We entered the pandemic with financial strength and good momentum, and in the second half of the period, our businesses recovered well from the initial impact of Covid-19 and are now fundamentally stronger than they were entering the pandemic,” says the CEO Bob van Dijk.
“The pandemic has accelerated activity in the consumer Internet space, benefiting our businesses. We have seen particularly strong growth in food delivery, online payments, etail and edtech. ”
Therefore, Naspers reports that the group’s retail businesses performed well during the Covid-19 pandemic. “With many retailers closed or limited in their operations, more consumers are shopping online,” management says, adding that Naspers and Prosus have interests in the major online retailers in their respective markets.
“Our Etail businesses were well positioned to meet this increased demand. In addition, they have adapted their operations to meet the changing needs of customers brought about by this unprecedented situation, ”says management.
SA online shopping
In SA, consumers also migrated to online shopping due to the coronavirus pandemic, with Takealot.com reporting 85% growth in rand terms.
“In the first quarter, SA operated under strict government lockdown regulations. Takealot.com was allowed to sell only essential products, while Superbalist and Mr D Food were unable to operate at all, ”Naspers noted.
“Business recovered at the end of May when trade restrictions were lifted and all three companies outpaced their pre-Covid-19 growth rates in the second quarter.”
In a short video broadcast to shareholders, Van Dijk said the group was in a strong financial position relative to many other companies when Covid-19 arrived, and internet-based companies quickly adapted to the lockdown and emerged stronger.
Well positioned for accelerated online growth
“Looking ahead, there is still a lot of uncertainty, but as a global group of Internet consumers, we are well positioned for accelerated growth online,” says Van Dijk.
“We have good financial flexibility, a strong balance sheet and a net cash position of more than $ 4 billion. We will continue to invest with discipline in food, OLX, Autonet and Edtech, while driving profitability in our more established e-commerce segments, ”says Van Dijk.
Read: Prosus looking for deals
Both Van Dijk and Sgourdos referred to the problematic discounting of Naspers and Prosus share prices to their respective underlying net asset value (NAV), and said management remains committed to addressing the structural issues that have led to a widening of the discount to the NAV recently.
Share buybacks
Along with the announcement of the results, Naspers and Prosus also announced more details of Prosus’s intention to buy back $ 5 billion worth of Prosus and Naspers shares in an attempt to reduce the discount to NAV. The buyback was proposed a few weeks ago.
Read: Prosus will buy up to R82bn in its own Naspers shares
Buying shares on the stock markets will begin this week, on November 24, and will end on November 26, 2021, or earlier if you compete faster. Prosus aims to buy back up to $ 1.4 billion in Prosus N common shares and $ 3.6 billion in Naspers N common shares.
Read: Naspers Insurance Plan – Prosus
According to the announcement, Prosus has appointed intermediaries to execute the purchases within certain parameters. These intermediaries will make their trading decisions independently of Prosus and Naspers, which will allow them to make purchases on the open market during open and closed periods.
The Prosus shares will be canceled, while the repurchased Naspers shares will remain as a Prosus investment.
However, Prosus assures shareholders that it will not exercise any voting rights associated with Naspers shares.
Local shareholders appear to have welcomed the results and details of the share buyback, with Naspers shares increasing 2.8% or R87 to R3 208 on Monday and Prosus by 2.9% or R48 to R1 688 , which pushes the JSE Top 40 up a bit more. 1.2%.
