Naspers pumps money into ecommerce — but Takealot takes a pummelling

23 Nov 2022

Naspers CEO Bob van Dijk says the group will remain committed to its ecommerce portfolio — and especially Tencent — for a long time to come.

A day after issuing a trading update warning of a significant decline in half-year profit, Naspers and its subsidiary Prosus published results for the six months ending 30 September, intimating that the worst was behind the group as it had channelled resources into profitable entities.

While international ecommerce has been Naspers’s saving grace, in South Africa, operations weighed on the company, with the Takealot Group (comprising Takealot.com, Mr D Food, and Superbalist) posting a trading loss of almost R224-million ($13-million) – despite growing its gross merchandise volume (GMV), a metric that measures total value of sales over a given period, by 15% and increasing revenue by 13%.

Superbalist and Mr D Food grew GMV by 15% and 13% respectively.

On Tuesday, Naspers and Prosus warned that the group expected a major decline of up to 108% in headline earnings per share for continuing operations. Core headline earnings were projected to decline almost 60% for continuing operations.

The diversified media and technology group has invested heavily in some of its divisions, offloaded risky stakes in others and embarked on a repurchase programme.

On Wednesday, the group reported that significant steps had been taken to drive profitability within core segments, with the ecommerce portfolio on track to reach profitability by 2025.

Shortly after the JSE’s closing on Tuesday, Prosus gave an update, saying it had bought 613,279 Naspers shares worth just over R1.53-billion, as part of an open-ended share repurchase programme announced earlier this year to offload Tencent shares and “unlock immediate value for shareholders”.

The buyback programme will continue for the foreseeable future as the group believes it “meaningfully improves” net asset value per share, creating permanent value that will compound over time.

To date, $5.8-billion of Prosus and Naspers shares have been repurchased.

At the time of the June announcement, Amsterdam-based Prosus was heavily exposed to Tencent, as its biggest shareholder. It held a 28.8% stake worth about $128-billion.

Value created

Naspers and Prosus CEO Bob van Dijk told media on Wednesday that repurchasing the group’s own stock was a great use of Naspers’ capital.

“Investing in Tencent and our own ecommerce portfolio at a 40% discount significantly improves NAV per share and creates permanent value that will compound over time. $15-billion of value was created on announcement of the programme.”

Despite the sale of a small portion of the group’s shareholding in Tencent to fund the buyback, Van Dijk stressed that the group was “absolutely committed” to being a very large shareholder in Tencent for a long time to come.

Last week, Reuters reported that Tencent planned to distribute $20-billion of stock in meal delivery giant Meituan in the new year. This triggered a selloff of Chinese internet stocks as investors feared more divestments by the online gaming company were in the offing.

The report noted that the government has punished Chinese tech giants for anti-competitive behaviour and the JD and Meituan dividends were likely to be aimed at buying goodwill with the government.

In effect, the plan equates to a R100-billion boost for Naspers, which has taken a punishment during Beijing’s crackdown on tech firms in China.

The Naspers group has already disposed of the JD Group, in which it raised $3.7-billion to enhance Naspers’ credit profile and liquidity.

Naspers is a widely held stock by pension funds and retail investors in South Africa.

The group’s headline earnings per share (Heps, based only on operational, trading and capital investment activities) has slumped almost three quarters in six months.

Some highlights

Group-wide ecommerce revenue is up 38%, driven by a strong operating performance across all four core segments.

Naspers’ revenue is up 9% to $17-billion, but group trading profit declined by 38% to $1.4-billion due to a lower contribution from Tencent and investment in ecommerce extensions.

Core headline earnings are down 51%, or $1.1-billion (R19-billion) to $372-million, although its new initiatives contributed $484-million of a $557-million trading loss.

Van Dijk said despite significant headwinds, ecommerce revenues and continued organic investment into key segments were promising. The group, he said, was well positioned for improvements in profitability and cash-flow generation, bolstered by strong operational execution and 41% growth within the ecommerce portfolio.

“We have continued our organic investment into those segments where we see the highest growth potential, notably within [OLX Autos – Naspers’ second-hand car trading venture], convenience delivery in food and credit at PayU.”

PayU — a Netherlands-based payment service provider to online merchants — has delivered good results, growing payment volumes and pursuing additional opportunities in credit and digital banking. Total transactions grew 17% year on year, driving total payment volume growth of almost 50% to $46-billion.

Consolidated revenue grew 57% to $412-million, due to growth in payments in India, Turkey and Poland, as well as scaling of the Indian credit business.

Naspers’ edtech portfolio consists of 11 investments, covering education from kindergarten-level to tertiary and enterprise. Investments in this sector have shown good growth, with revenues on an economic interest basis increasing 38% to $334m, while trading losses grew to $178-million, affected by adjustments related to BYJU’s (an Indian multinational educational technology company), global online education platform Udemy and Skillsoft, an American educational technology company that produces learning management system software and content.

Stack Overflow, a knowledge-sharing platform, showed good progress, with total bookings increasing by 53% in the period.

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The food business has also proved resilient: Naspers has exposure to food delivery businesses in more than 70 countries, with the biggest businesses being iFood, Delivery Hero and Swiggy.

It said it had sold more than 26% in merchandise, which hiked revenue by 52% to $1.9-billion, while investments boosted trading losses by $69-million to $381-million.

iFood — the Brazilian food and grocery delivery platform in which it has a 33% stake — had an outstanding six months, with revenue growth of 29%, to $606-million.

Its OLX Autos investment increased trading losses to $159-million, but revenues grew by 84%, to $1-billion, as demand and prices for used cars remained high in markets. OLX Autos sold 114,000 cars in the six-month period, up 60% on the prior period.

In a statement, group CFO Basil Sgourdos explained that revenue was up strongly across their segments, despite the significant foreign currency headwinds in emerging markets and a lower contribution from Tencent.

“Our ecommerce businesses are all profitable, or breakeven at the core, and we have accelerated efforts to drive profitable growth. We expect HY23 to mark our peak investment spend, with profitability and cash flow generation improving from here on, with our ambition to be profitable on aggregate in H1 FY2025.

“Our strong balance sheet and significant liquidity is a key advantage in the current climate; we will remain disciplined on M&A and committed to maintaining our investment grade rating.”

Van Dijk said they believed their financial position remained excellent, as Naspers boasts $15.8-billion in gross cash and net cash of just over $600-million.

“We have adapted to the new market realities by setting even higher targets for M&A returns, preserving liquidity, and are taking action to reduce costs across the portfolio and promote free cash flow generation.” BM/DM

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Value created

Some highlights