EDITORIAL: The message from Naspers/Prosus is that it’s reached a turning point

It’s been quite a time for global tech giants. And when they go south, the numbers are enormous. At one point last month Meta, the parent of Facebook and Instagram, had lost $1-trillion in value after it reported profits halved in the third quarter. Amazon this month became the first public company to lose more than $1-trillion in value, with its market value falling to $879bn from a peak of $1.88-trillion a year ago.

As Naspers/Prosus rather delicately put it in a media release on its interim results this week, it’s been “a turbulent period in which industry growth expectations and valuations came under significant pressure”.

In the face of industry, geopolitical and macroeconomic risks, the group clearly is adopting a more measured and focused approach to its sprawling e-commerce portfolio, which it now sees turning a profit towards the end of 2024. Investors who have until now seen the group as no more than a play on Tencent will no doubt welcome this — as they should.

For now though, the group has worked hard to put some context and e-commerce substance to its less than wonderful headline numbers. The share price took a dive ahead of the interim results on a trading statement that indicated core interim headline earnings per share could be as much as 60% down on last year. Much of that was a classic base effect: the profits Prosus booked a year ago when it sold down a chunk of its holding in Tencent were not repeated this time around. Some of the decline too was because the group continues to invest quite heavily in what it calls “extensions” to some of the businesses in its e-commerce portfolio.

But the message is that this is a turning point. Where previously the group was making multiple acquisitions, now it has become more selective in its mergers & acquisitions (M&A). It believes its core e-commerce businesses have reached the scale needed to become profitable and is investing organically and trimming costs to ensure they get there, as it believes they will collectively in its 2025 financial year.

The interims showed evidence of that, with e-commerce revenue up 41% to $5.2bn. Here at home, Takealot grew 15%-20% in a weak economy. Against global peers that have seen revenues crash, that doesn’t look too bad. And management points out that even where economic conditions are deteriorating and consumers’ disposable income coming under pressure, the uptake of e-commerce in the sectors in which it is playing is still growing fast enough to offset this. Now the group just has to prove its point about profitability over the next year or two.

Meanwhile it has moved aggressively to close the discount at which its shares continue to trade to its estimate of their net asset value. It is selling down bits of its Tencent holding to fund an open-ended buyback of Naspers and Prosus shares. Since this was announced in June it has bought $5.8bn worth. Taking advantage of the discount to buy its shares on the cheap, as it were, is the best investment it could make, its argument goes. There is plenty of merit in that and shareholders have responded positively.

Over time though, if it wants to win the approval of investors the group has to move from the seemingly endless corporation and financial transactions and M&A activity to show it can be a successful operator in the markets in which it has chosen to operate. It’s undertaken to simplify its structure too, to make it easier for investors to understand. Even though it declines at this stage to give details, that too will be welcomed. That’s becoming particularly important now that the shine has worn off China — though Naspers/Prosus CEO Bob van Dijk continues to be remarkably bullish about China.

For so long its Tencent tail has wagged the Naspers and Prosus dog and the market showed its doubts about the rest of the group in the deep discount it applied to the shares. Now it is narrowing the discount by buybacks, but if it can continue to show progress on turning its e-commerce operations to account, investors may view it very differently in a couple of years’ time.