Naspers - Africa's Craigslist?

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Includes: NAPRF, NPSND, NPSNY, TCEHY, TCTZF
by: Kevin Carter
Summary

Naspers is a global internet and entertainment company based in South Africa.

Naspers holds a 31% stake in Tencent.

Naspers is looking to become an online classifieds powerhouse.

Naspers (NPNSY) is a global internet and entertainment company as well as technology investor headquartered in South Africa. According to the company’s website, “Naspers builds leading companies that empower people and enrich communities.” Its website touts over 50 business in 120 companies.

Naspers holds a 31% in Tencent (OTCPK:TCEHY). It recently sold a small portion of its stake and is using the proceeds to build out its online classified business.

Investors can purchase both Naspers and Tencent shares directly as they are both publicly traded companies. Alternatively, they can purchase shares of EMQQ – the Emerging Markets Internet and Ecommerce ETF – which help Naspers as of 12/31/18.

Raising Funds

According to an article in the Wall Street Journal, Naspers sold down its stake in Tencent to 31.2% from 33.2% in March of 2018. That netted $9.8 billion for Naspers. The company plans to use that money to fund further ventures including online classifieds, payments, and food delivery. Naspers plans to use $500 million of the money in its classified business.

Online Classified Ads

Naspers has classifieds businesses in some 40 markets from Russia and Brazil to the U.S. Within the U.S., the company competes with its mobile classified app, letgo. According to Naspers’ website, letgo has over 400 million listings. The app allows you to point your smartphone at an object to see what it is worth and the demand for similar items.

Citing a study conducted by McKinsey Group, the WSJ article puts the global online classified market at around $24 billion which represents a 50% increase from five years ago. The study cited surging usage of the internet and smartphones coupled with a rising urban population with less space to store excess belonging as some of the factors fueling growth.

Lots of Stuff Makes a Good Market

The head of Naspers classified business noted that classifieds work well where people have lots of stuff that they don’t need and ready access to the internet. That is why the business works well in countries such as the U.S. As countries develop, its populations acquire more stuff and the potential opportunities increase. That is why Naspers is willing to bide its time in a developing country like India with its population of over 1.3 billion.

Classifieds – Back to the Future

Naspers was founded in 1915 as a newspaper publisher. Over time, it expanded beyond its publishing roots and transformed itself into a media and internet company. However, classifieds are central to the revenue stream of newspapers. Classifieds help bridge Naspers’ past with its future.

Potentially Profitable Revenue Stream

The article noted that classifieds could be a very profitable business. One analyst in the article noted that margins on classified, as measured by earnings before interest, depreciation, and amortization (EBITDA) can be 50% higher than other segments of the media business.

The WSJ article noted that Naspers’ classified business was profitable in 2017 for the first time, excluding letgo where it has invested heavily. The company expects the classified business to be profitable this year inclusive of letgo due to big profits in Eastern Europe, Russia, and Brazil.

Summary

Naspers is monetizing a portion of its investment in Tencent to fund future growth. It has invested heavily in its online classified ad company – letgo – as it looks to build out it classified business. The classified ads business has historically been a high-margin business and there is the potential for many emerging markets countries to become more consumer-oriented and acquire more stuff which they may ultimately want to get rid of. Classifieds may help them to do so.

EMQQ – the Emerging Markets Internet and Ecommerce ETF – holds Naspers and Tencent as of 12/31/18.

Disclosure: I am/we are long NPSNY, TCEHY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am the founder of the Emerging Markets Internet and Ecommerce Index, which is licensed to Exchange Traded Concepts and serves as the basis for the Emerging Markets Internet and Ecommerce ETF (EMQQ). I manage an Emerging Markets Hedge Fund that is sometimes long constituents of EMQQ and myself and my family are long EMQQ.