Naspers released its FY19 results on Friday (21 June), with revenue climbing 29% YoY to $19bn (c. R271bn) vs FY18’s $16.4bn. Group trading profit increased 22% YoY in local currency terms and adjusted for acquisitions and disposals, to $3.3bn. Core headline earnings were up 26% YoY to USc694 While strong core earnings growth is reassuring, Naspers’ evolution into a technology venture capital fund means that it is more the rate of return on its investment portfolio, rather than volatile earnings that is critical – excluding Tencent, it estimates a US dollar internal rate of return achieved on its internet investments of 15% since 2018.
Online Classifieds, which is the vertical where most of the value within its Ecommerce segment sits, delivered its maiden profit for the full year. However, we note that profit was larger at the interim stage, implying it slipped back into a loss in 2H19. It blamed this on seasonality in marketing spend around Christmas, investments to scale the business, as well as some “restructuring costs” in 4Q19. Losses in food delivery widened considerably in 2H19, which it attributed to “investments in scaling operations” and Naspers is guiding to continued investment over the coming years. Meanwhile, etail trends are slightly distorted by the sale of Flipkart in India during the year under review. EMag (Eastern Europe) and Takealot (SA) both seem to be growing gross merchandise value well and moving towards profitability. In the Payments and Fintech vertical, Naspers said its core transactional platform is now profitable, while it is investment in other areas (lending and remittances, for example) push it into losses. Nevertheless, operationally the general trend across these internet verticals is that the businesses are continuing to deliver strong top-line growth and margins are heading in the right direction (with the exception of food delivery). Relative to the past, we were struck by the much more bullish outlook given for food delivery, with management saying its decision to invest more heavily behind this vertical reflected its view that the long-term opportunity is much greater than previously thought.
Naspers spent $3.3bn on investments in the year under review, which is well in excess of its c. $500mn rough rule of thumb annual investment rate management has guided to in the past However, we believe what is positive is that the vast majority of this has gone to increasing stakes in existing businesses rather than venturing off into deeply loss-making new directions with uncertain prospects (in our view, there had been growing investor fatigue in the past at the firm constantly investing in new areas). Despite Naspers investing well in excess of the group’s organic cash generation, the sale of Flipkart and a bit of its Tencent stake has resulted in it being very cash-flush at present – after this year’s investments, Naspers is still sitting on net cash of $6.3bn.
Figure 1: Naspers as it currently stands
*The SA assets are now split out, which is obviously relevant in light of the offshore listing.
Naspers also announced a delay in the Euronext listing of NewCo (initially set for 17 July) in Amsterdam until early September. This was due to what the company described as “… an administrative error by an external service provider.” The error “… resulted in certain of the copies of the circular delivered to shareholders being incorrectly labelled”, according to Naspers. NewCo now has a name – Prosus N.V. Prosus will include all of Naspers’ internet interests outside of South Africa, including its 31% stake in Tencent and investments in mail.ru, OLX, Avito, letgo, and PayU etc.