In a small but important step to break the shackles of being regarded as a proxy for Tencent, Prosus delivered a third straight annual profit from its classifieds unit, which helped narrow losses in the broader e-commerce platforms.
Prosus is the global internet arm of SA’s most valuable company, Naspers, and houses its prized R3-trillion stake in the Chinese money maker. Prosus has been grappling with trillions of rand in valuation shortfall to the sum of its parts, prompting it to embark on structural fixes.
But the biggest challenge facing CEO Bob van Dijk is to show investors that other businesses within the group can grow faster than Tencent and can be turned into profitable companies that contribute meaningfully to the bottom line.
In the year to the end of March, Prosus reported 46% narrower losses to $429m from the e-commerce platforms, which include a range of businesses from classified advertising sites OLX and Autotrader to food delivery platform Delivery Hero and online education provider Udemy.
The company’s payments unit and classifieds business have been in the black for the past two years and three years, respectively, Prosus said, but their combined $433m profit — which grew nearly one-third — was not enough to offset losses elsewhere.
The unit’s revenue grew 54%, outpacing the strong 28% revenue growth at Tencent.
Group CFO Basil Sgourdos said 60% of the $5.1bn total
e-commerce revenues come from profitable businesses.
“These results are the strongest financial performance in the group’s history,” Sgourdos told Business Day on Monday.
He attributed much of the growth to the increased demand in internet and online services like classifieds, food delivery, fintech and education.
“A few years ago, we made a decision to transition the group into a pure online business and one that is fundamentally focused on e-commerce. That prepared and set us up well to deal with the pandemic,” he said.
Renier de Bruyn, senior equity research analyst at Sanlam Private Wealth, said it was positive to see the strong revenue growth in the Prosus e-commerce portfolio, “which should help these businesses to reach scale over time to become large, profitable businesses”.
He added: “In aggregate, the non-Tencent portion of the Prosus portfolio, however, remains loss-making given the fact that the management has not been hesitant to invest aggressively behind their companies to maximise their longer-term potential, even at the expense of shorter-term profits.”
Peter Takaendesa, head of equities at Mergence Investment Managers, said it would be difficult to sustain such rapid growth in the e-commerce business, as much of it was driven by the pandemic. However, he still expected “e-commerce losses to continue to reduce as they gain further operating scale”.
Rapid growth
Armed with a war chest of about $8bn, Prosus could deploy a portion of the money to these businesses, which it values at around $39bn.
As part of the plan to grow the financial services business, Sgourdos said the company would focus on growing PayU’s lending businesses, particularly in India, which is the unit’s largest market.
In addition, the group sees potential to expand in Southeast Asia, after having recently set up an office for the venture capital arm in Singapore as a way to quickly find deals and to invest in the region.
Still, the results, which showed a nearly two times jump in annual profit, underscored Prosus’s heavy dependence on Tencent, which accounted for virtually all of the company’s $5.6bn trading profit as locked-down consumers flocked to its blockbuster video games and social media platforms.
Value gap
Naspers, currently valued at R1.36-trillion, has for years been working to close the long-standing gap between its market value and the sum of its parts.
Its market value is dwarfed by its 73% stake in Prosus, a R2.4-trillion European internet juggernaut that is grappling with a valuation gap of its own as its 29% stake in Tencent — worth almost R3-trillion — eclipses its market capitalisation even though the company has other assets in its portfolio.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.