Naspers. Next big focus, e-commerce.

Last Monday we looked at the Naspers trading update, this morning the company has released their results for the six months to end September. Consolidated revenue for the first half grew 22 percent to 22.597 billion ZAR, EBITDA increased 8 percent to 4.208 billion ZAR, whilst "core headline earnings per share" grew 15 percent to 10.62 ZAR. As the company always says in their results, core earnings excludes once-offs and non operating items such as unrealised forex gains or losses. The results have been boosted by the fast growing internet segment as well as benefitting from the weaker currency in the period.


Since the beginning of the year the company has made acquisitions topping 4.5 billion Rands, most of the focus is on e-commerce businesses. Businesses that have been bought include Netretail and Flipkart, as well as eMag, mentioned below. Naspers has seen organic growth of 27 percent in their e-commerce businesses, but with all the strong acquisitive growth that has been boosted to 4 billion ZAR, an increase of 61 percent over this time last year. Most recently, since October, and Byron wrote about these events, the company has invested 120 million Dollars in buying a controlling stake in an online retailer in Romania, eMag as well as a minority stake in a smaller Dubai based online business, Souq.com. That has to be one of my most favourite names for a website.


In the pay TV segment Naspers managed to add 393 thousand subscribers, the total base across the continent (48 countries covered) now stands at 6 million. You could argue that is nowhere close to maturity. In fact, if this business was the life of a person I would not hesitate to suggest that this is just a child learning to speak. In South Africa the additions were 187 thousand, to bring the total subscriber base to 4.2 million households. 87 percent of the growth came through the Compact offering. It is absolutely no coincidence that the compact offering includes both local and international football. Live sport is something that you cannot watch tomorrow, your mates have already told you the score and results.

Talking, of devices that you can watch your favourite programs on tomorrow, PVR sales increased by 90,000 with the total base now at 747 thousand. Which meant of course that rentals have taken off as people become familiar with the process of downloading and paying for movies. BoxOffice monthly rentals topped 400 thousand for the first time. I commented to my wife that I can't believe that "Video" stores still have the same priced films as BoxOffice. If I rented DVD's, I would employ someone to drop them off and pick them up, plus sell them at a discount to the BoxOffice one, at least in the better to do areas. Video might have killed the Radio Star, but it is almost certain that superior network and satellite speeds killed the DVD. The DVD of course was responsible for killing the video. And believe it or not, that song Video Killed the Radio Star is only 33 years old. Remember CD's? Remember DVD's? In the same way that we will remember Betamax and VHS, as well as the tape deck, DVD's are a dying business. Slowly of course.


This might well be the first time that I have however seen the subscriber base in Africa grow at this cracking pace however, with total subscribers increasing more on the rest of the continent than at home. Pay television was added to 206 thousand new houses bringing the rest of sub Saharan Africa subscriber base to 1.8 million folks. And the growth, as Naspers points out in the commentary was across all bouquets and platforms. You can't quite compare the satellite TV revolution in Africa as the cell phone revolution, because satellite TV is more for the one percent. Perhaps not quite, but richer people with a proper formal dwelling, access to reliable electricity supply as well as the earnings power of the household are more likely to be looking for superior entertainment. And often entertainment is live sport and in particular, football or soccer as the Americans call it.

Revenues from this core pay TV business increased 19 percent to 14.4 billion ZAR, trading profits totalled 4 billion ZAR, up 18 percent from the prior reporting period. The important investment cycle in the infrastructure will continue to suck cash, but should pay off in the medium term. Naspers are developing their digital terrestrial television (DTT) network across Africa, this requires big spend.


The old print business chugged along, margins improved as a result of cost cutting exercises. Revenue growth in this "old" division increased, by what the group describes as a pedestrian pace of 5 percent.


Core earnings from their associate businesses, the old exciting ones, Tencent, Mail.ru and Abril increased a whopping 46 percent to 3.1 billion ZAR. As you can see, the satellite TV, upgraded and all is still their most important business. Tencent now attracts 784 million instant messaging accounts that are active monthly. Peak online simultaneous users increased to 167 million, or roughly the entire population of Nigeria. Tencent is investing in ecommerce opportunities, again, that shift is coming. Mail.ru attracts a more paltry 32 million unique Russian users, but that is still not to be sneezed at.

Both the financial director, Steve Pacak and long time CEO, Koos Bekker are making noises about stepping up the spend in their e-commerce businesses in emerging markets. That will result in increased development spend and lower margins. But this will result in a different business, less reliance on two specific parts, a more spread and stable business. I think that bodes really well for shareholders, the greater the mix from the company, the better for both the long term profitability of the company and by extension, the shareholders. There is a definite shift in focus towards ecommerce, strangely a decade and a half when people got very excited about it. Amazon is changing the world, but at a slower rate than people anticipated.


The good news for Naspers shareholders is that they own these core businesses that are still growing. The pay TV business still excites me, and should continue to grow strongly. Their internet businesses are still exciting too, the opportunities are many. We continue to buy Naspers, even though the stock on an earnings valuation has always looked expensive. But when you drill down and separate the parts, well, then not so much. Good results, the market has responded favourably.