Naspers, the global internet group, yesterday reported a heavy 74% slide in core headline earnings to $372 million (R6.4 billion) in the six months to September 30 due to lower profitability across associates and fair value losses for the investment in China-based Tencent.
The decline was partially offset by reduced share-based compensation expenses, as well as lower finance costs due to a revaluation gain on euro bonds, CEO Bob van Dijk said in the results yesterday.
Of the lower contributions from associates, $879m related to Tencent. There was also lower profitability from Delivery Hero of $530m due to a once-off gain in the prior year.
These were offset by an increase in Naspers’ share of gains on disposals ($747.2m) in Tencent. The sale of Tencent shares to fund the share buyback delivered a $2.8bn gain. A trim of the Tencent position in the prior period resulted in a gain of $12.4bn.
Group trading profit fell 50% to $1.4bn, reflecting Tencent’s 26% lower contribution, losses in the consolidated e-commerce business of $462m, plus Naspers’ share of losses from e-commerce associates ($551m).
Anchor Capital investment analyst Mike Gresty said Naspers management had guided the widening losses and these were not worse than expected.
He said Naspers’ “peak spend is behind it” and its management had “put a peg in the sand”, saying its e-commerce businesses would be profitable by financial 2025.
Gresty said Tencent’s earnings growth momentum should sequentially improve and “for the first time in quite a while we are seeing analysts upgrading forecasts post the recent quarterly results. That’s positive.”
He added that further recovery in Tencent shares would be absent as actions by Chinese authorities made this market a toxic place for foreign investors.
Flagship Asset Management fund manager Pieter Hundersmarck said the market had already shown its displeasure with these results, and he would not put his pension money in Naspers, as there were many other better companies in which to invest.
He said, on the positive side, Naspers was in a strong cash position, and it was saved by not proceeding with the PayU acquisition in India.
On the negative side, he said Naspers management was still offering “jam tomorrow” because, of all its companies, only the classified operations in Poland and food delivery business in Brazil were profitable.
He said the outlook for Tencent was currently a “socio-political” decision. Tencent’s share price and operations had been knocked by regulatory changes and political uncertainty in China this year.
He said the current environment, including high cost of capital, had forced Naspers’ management to focus on bringing their operations to profitability, and “they have now put themselves on the line to prove it”.
Naspers’s management said impairment losses on equity-accounted investments of $1.5bn were recognised as a result of challenging macro-economic conditions and the decline in growth expectations and valuations.
Van Dijk said the group remained “confident in long-term potential and strategic value-add despite the short-term macro-economic challenges that drove the impairments”.
On an economic-interest basis, group revenue from continuing operations grew 1% (9%) to $17bn, driven by a healthy 32% (38%) increase in e-commerce revenues.
He said thee-commerce businesses maintained strong topline momentum. Consolidated revenue from continuing operations grew 15% to $3.6bn.
Classifieds revenue grew strongly. The Food Delivery performance remained robust, driven by growth in quick commerce that leverages the scale achieved in the restaurant delivery business.
iFood grew in scale and improved its trading margins in both core food delivery and quick commerce. In Payments and Fintech, the core payments business grew volumes and pursued opportunities in credit.
In India, margins improved in the core payments business and in credit. A once-off provision in Brazil, as well as pressure on take rates and gross margins, drove a lower margin in the Global Payments Organisation.
Edtech recorded strong revenue growth. The enterprise platforms, Stack Overflow and GoodHabitz, invested in product enhancement and footprint expansion.
In May, the group said it would exit its Russian classifieds business, Avito, and $2.4bn of proceeds were received in October 2022.