Update on Naspers' TenCent holding

We had results that slipped through the cracks the other day but I think it's fitting to cover it today seeing that Naspers dropped 5% yesterday. I'm talking about the Tencent results which were released last week which were yet again very impressive. Analysts have constantly questioned Tencents ability to maintain their fascinating growth rate off an ever increasing base but yet again they have managed to do great things. I guess it's understandable when you have nearly 1 billion users.

To put things into perspective Naspers own 34% of Tencent which at a market cap of $50bn equates to $17bn or R140bn. Naspers entire market cap as of today sits at R180bn. So, you can see why the Naspers share price follows the Tencent one so closely and why it is very important for us to follow the company as if it were our own.

So far this year Naspers is up 25% whilst Tencent has improved 35%. South African Investors are conservative and still believe Tencent is overvalued. It does trade on demanding valuations, so let's look at those numbers. The company managed to increase revenues by 52% whilst profits came in at $467 million. The stock sits on a historic PE of 31 but growth projections look good.

The business looks strong. It's like the Facebook, Google, Zynga and BBM of the western world all amalgamated into one company. Microblogging, messaging and gaming have really revelled under this massive smartphone expansion. Who would have thought? Better phones means a better experience and more consumption of data and services. In the quarter the company added 30.9 million subscribers (for the quarter!!) while their flagship QQ instant messaging service reached a total of 751 million subscribers.

The big revenue driver is the online gaming and QQ related subscription fees which grew 41%. E-commerce is also coming into the forefront which has just been introduced onto the platform. If you believe what we do about the Chinese consumer driving growth then this is going to be massive. They have the clients, now they just have to monetise them, which in the past, they have managed to do already. This is like Facebook on steroids with one third the valuation.

So those looked very encouraging. Why did Naspers drop so much yesterday? Because Tencent fell hard on the Facebook share price. I wouldn't be too worried. Many traders were banking on a big rerating in social media companies following the Facebook IPO, this is one of the reasons Tencent is up 35% this year. So yes, they have been rerated and the Facebook thesis has been correct. But the stock dropped 10% yesterday and of course that is going spur sellers in the sector. Nothing to worry about as a long term holder.