For the first time in years, Naspers and Prosus report significant earnings growth, driven by food delivery and online classifieds. More from TJ Strydom, Author of Koos Bekker’s Billions, of the Currency.
It’s been forever since Naspers and Prosus made an actual profit. And it’s not just Tencent doing all the heavy lifting.
In Brazil it was meals and in Eastern Europe it was wheels that gave Naspers (and its European half-bro Prosus) an ecommerce boost in their most recent half-year.
Where “increased profitability” in previous years often just meant “narrower losses”, this time around earnings were sharply higher in the group’s sprawling portfolio of online businesses. And that was thanks, in large part, to strong performances in food delivery and online classifieds.
Any Naspers (and Prosus) watcher will know that the group’s share price movements are usually just a proxy for the rise and fall of its greatest asset – the 24.3% stake it holds in Chinese tech giant Tencent. Strangely, on Monday, Naspers and Prosus both rallied despite a very subdued performance by its Hong Kong-listed investment.
And that, of course, would be very good news indeed for newly minted CEO Fabricio Bloisi and group chief investment officer Ervin Tu.
The duo – one an entrepreneur and operator, the other a dealmaker who spent more than a decade at investment bank Goldman Sachs – are tasked with highlighting the value in Prosus outside of Tencent. Tough going. A bit like trying to convince someone of the merits of a high-protein snack when they are already chewing biltong.
Yet these results were the best slice of meat, fat and salt Bloisi and Tu could have hoped for.
The numbers for Naspers and Prosus differ slightly, but the direction is the same. Ecommerce revenue grew 26% at Prosus (24% at Naspers), but, more tellingly, adjusted earnings before interest, tax, depreciation and amortisation rocketed by more than 100%, from a loss of $36m to a profit of $181m.
“We’ve highlighted significant pools of value, and we’re confident there’s even more ahead,” says Tu. It is all part of “actively managing” the portfolio, and the plan is to deliver revenue of $6.2bn and earnings of $400m for the year ending March 2025.
Beyond the spaghetti strategy
For many years, the approach was something different entirely. Long-time CEO, and now chair, Koos Bekker is still remembered for his investing mantra of throwing spaghetti at the wall and seeing what sticks. The $32m Naspers threw at Tencent in 2002 turned into more than $100bn (that’s billion with a capital “B”). But many of the other swings were big misses – especially those under Bekker’s successor Bob van Dijk, who allocated several billion dollars to building an education technology segment that has not lived up to the sales pitch made at the time to shareholders.
Tu is now the one cleaning up the wall. He scrubbed some of the problematic parts out of the classifieds business, refocusing on vehicles and property. And losses at some of the edtech businesses have since narrowed.
It is also notable, says Anchor Capital fund manager Mike Gresty that under Bloisi, Prosus has for the first time in a good while “monetised” a sizeable investment. Last month’s listing of Indian food delivery business Swiggy – now valued at more than $12bn – was a clear move to highlight value. The group retains a stake of just below 25% in the Indian business.
Bloisi and Tu’s approach is much more targeted. In Bloisi’s words: “We are not trying to just invest at random.”
All Weather Capital’s Jarred Houston reckons that Prosus is now showing good discipline in deploying capital, noting that the group spent all of $300m in the past six months.
For some of the loss-makers in the group, all they need is time, say Tu and interim CFO Nico Marais.
The iFood business in Brazil, for example, was experimenting with European-style “dark kitchens” – basically restaurants with no seating, primarily focused on delivering meals – a couple of years ago. These guzzled cash, says Marais. But the latent rollout of AI across the group has paid dividends, bringing customer acquisition costs down by 30%, and generating savings of 15% by optimising delivery infrastructure.
iFood was, of course, the business Bloisi ran before taking the reins at Prosus.
“I think we are starting to get a better sense of the shift in priorities that the new CEO is bringing and how much he is driving a change in culture there,” says Gresty.
Bloisi told Currency in an earlier interview that he saw it as his mission to break down the “silos” in Prosus. Van Dijk had organised the group into “segments” that fit nicely onto a slide deck but lost some of the old Naspers’s gung-ho magic. Bloisi, with his Brazilian charisma, aims to breathe new life into the company as a whole. And the AI cross-pollination – through Prosus’s Toqan system – is a good example of this.
New listings
It certainly helps when large parts of the business actually make some money.
“Driving not only growth, but profitable growth, is key for Prosus to highlight the value of the ecommerce businesses,” says Houston.
The more positive cash flow that the group’s portfolio of food delivery, classifieds, payments and education technology investments generates, the harder it is for the market to ascribe a negative value to these assets, he adds.
In theory that should help narrow the discount between the value of Prosus and its stake in Tencent. The continuing open-ended share buyback – selling Tencent stock and buying Prosus and Naspers – is the other lever the company is using.
But other value-highlighting moves – more listings – are certainly on the cards. Bloisi and Tu won’t be drawn on a specific date, but have said that in the next 12 to 18 months the Indian payments business could also go public.
They would have liked to have done it already, but the authorities rolled out regulations that hit revenue hard at PayU.
“The revenue of the payments business flatlined for about a year due to regulatory constraints in India and it only picked up in the second quarter of this half-year,” says Houston.
If it keeps going, another Swiggy could well be in the offing.
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