Africa’s most valuable company, Naspers Limited has recently cashed-out about 2% of its stake in Tencent Holdings, China’s largest Internet company where it held about 35% stake.
The decision to cash out about $6 billion from its Tencent stake is very instructive. Naspers only invested about $32 million in Tencent less than 20 years ago. Between now and then, this seemingly huge better has more than paid off, returning more than 60,000% return on investment.
However, the ‘good luck’ has also brought more pressure on Naspers. The once-an-apartheid newspaper company now seats on a $170 billion worth of its stake in Tencent. For several years, the company has been searching for another Tencent to strike gold for the second time.
However, this has proven not just more difficult, but nearly impossible. In the last 10 years, Naspers has burnt more than $5 billion investing in various startups and Internet companies, many of which have either closed down, sold at a loss or deemphasised its equity in them.
Yesterday, Naspers raised about $10.6 billion after it sold about 190 million units of its shares in Tencent. While the company was explicit on what it will use the ‘largesse’ for “The funds will be used to reinforce Naspers’ balance sheet and will be invested over time to accelerate the growth of Naspers’ classifieds, online food delivery and fintech businesses globally, and to pursue other exciting growth opportunities when they arise”.
An analyst who covers Naspers said he is surprised that the company’s strategy has not changed given its need to make success out of the many ventures in its kitty.
Counting the cost
Naspers has gotten its figures burnt in Nigeria, West Africa and even Eastern Africa where it had at various points invested in or created startups that it ended up shutting down or hurriedly-exited without recourse to learning how to do things better. To cover up for its deficiencies in Africa, Naspers has since invested varied sums to acquire Internet companies across Europe and the Asia Pacific.
No doubt about it, Naspers is indeed a juggernaut in Africa and across the world with peer comparison similar to Alibaba Group, Amazon and even Google. The company has full stakes or part ownership in eCommerce companies, Bitcoin exchange, classifieds, TV production, news websites, data mining and analytics companies and virtually every aspect of an Internet startup that is trendy.
A tech analyst who spoke to us under anonymity said he is certain that Naspers would not invest much of the monies in Africa until it is certain that the continent has produced worthy examples of profitable Internet companies that require growth.
It would be recalled that Naspers had invested more than $20 million in Konga alongside Sweden’s Kinnevik which was recently stripped and sold to Nigeria’s Zinox Group for undisclosed amounts. The company has also had its own ground-up share of start and stop ventures.
In 2015, Naspers imported its successful mobile messaging app from China, WeChat into Nigeria and other African countries. Less than three years after, Naspers hurriedly shut down operations across these markets. The same scenario played out with OLX and Mocality. These are millions of dollars gone down the drain.
As it stands, Naspers is left with Multichoice and other entertainment property which the company had admitted that it is running many of them at a loss. Last year, there were reports that Naspers was in talks with MTN Group, Africa’s largest mobile carrier to sell-off its rest of African unit of Multichoice, a payTV and entertainment company it claimed it is running at a loss.
With close to $10 billion in cash, it is not hard to understand why a company might seem invincible.
However, Naspers will have to admit its errors in the way and manner it decides its investment case and how it manages them. With the way it ran the affairs of some of its startups in Nigeria, it is very apparent why the company will often not make any profit out of them. Many of its startups were managed using templates and methods that has overtime failed in markets where they were adopted.
For instance, eCommerce cannot be profitable given Nigeria’s economic dynamics if it is done using global methods. Offline retail accounts for more than 90% of all retail sales in Nigeria with eCommerce having less than 1% share even after seven years of several companies competing in the space. It was a common-sense that for any company to make it in eCommerce, there has to be a linkage between offline and online. None of Naspers’ companies listened to the market until they eat the humble pie and crashed out of the market.
Naspers will have to evaluate its investment strategies by properly defining what it does and stands for. Is Naspers a holding company that manages other companies as subsidiaries? Is Naspers just a venture capital that invests monies in high-growth startups looking for the next buyer who is ready to take up its shares for a premium?