Naspers CEO Defies China Slump to Leapfrog Netflix in Africa

Naspers CEO Defies China Slump
  • Has more than $2 billion to spend on emerging-market expansion
  • Says underlying fundamentals are very solid for Tencent

Bob van Dijk’s $55 billion media company gets almost all of its value from a single Chinese investment, yet he’s more concerned about attracting Africans to Naspers Ltd.’s new video-on-demand service than about China’s economic slowdown.

Naspers’ 42-year-old chief executive officer is focusing on how to beat Netflix Inc. to a potential audience of more than 1 billion across the African continent with the company’s ShowMax service, which went live in South Africa earlier this month.

Robert Van Dijk, chief executive officer of Naspers Ltd.
Robert Van Dijk, chief executive officer of Naspers Ltd.
Photographer: Graeme Williams/Bloomberg

“It’s a priority for the group,” van Dijk, who oversees the project, said in an interview at Naspers’ headquarters in Cape Town. “We’ve never limited our ambition to South Africa.”

Van Dijk is plotting the expansion of ShowMax across the least-connected populated continent as rival Netflix plans to expand to be present in 200 countries by the end of next year. The move into online streaming is the latest evolution of a South African business that started as a newspaper publisher into an investor in emerging-market startups. In 2001, Naspers put $32 million into then-obscure Web company Tencent Holdings Ltd. Its stake today is worth more than $50 billion.

Naspers plans to spend about $65 million on ShowMax this year, which will probably break even in 2021 with about 800,000 subscribers, according to Morgan Stanley analyst Edward Hill-Wood. ShowMax will be unprofitable until at least 2017, according to van Dijk, who declined to give subscriber numbers or forecasts.

Growth of video-on-demand is limited in Africa by a lack of fixed-line infrastructure. South Africa is the continent’s market leader with around 1 million lines. Wireless data is often too expensive for streaming data. 

Providing data cheaply is a challenge, van Dijk said. “What people truly need for many reasons is affordable, quality, high speed.”

To help drive growth, Naspers is considering partnering with wireless operators to provide the service over their networks and will monitor the roll-out of high-speed cable across Africa, according to van Dijk. African phone companies like MTN Group Ltd. have started offering smartphones for under $50.

Finish Line

“Cooperation is a much more likely outcome than us actually going after and acquiring a major telecoms operator,” he said. “We’ve been rushing for the finish line much inspired by what we’ve seen in China, where online video consumption is absolutely exploding.”

The company, which began 100 years ago as a newspaper publisher, has more than $2 billion offshore for acquisitions, van Dijk said. Last week’s rout on emerging markets offers a good opportunity to invest, he said.

“The whims of market don’t really change our views on assets, the whims of the market do change the price of an asset,” he said. “It’s more of an opportunity than a threat. Prices are under pressure which could provide good buying opportunities.”

Small Payments

Naspers’ bets on China have been successful and recent market volatility isn’t a reason to reduce that business because the world’s second-largest economy is moving away from investment-led growth toward consumer-driven expansion, according to van Dijk. Tencent’s revenue depends primarily on small payments from a large number of consumers in games and social media, he said.

Volatility in the Chinese stock market will affect Naspers’ share price, said van Dijk. “The underlying fundamentals are very solid for Tencent. So I don’t spend our time worrying about short-term.”

Morgan Stanley’s Hill-Wood cut his target price for Naspers last week to 2,199 rand from 2,282 rand, citing a "pullback at Tencent as the single most important risk” to the South African company, while keeping his overweight rating on the stock.

Since the global equity rout that was triggered by China’s devaluation of the yuan on Aug. 11, Tencent shares have fallen about 8 percent, while Naspers was down 1 percent. The shares slipped 0.5 percent to 1,720 rand at 2:17 p.m. in Johannesburg, giving Naspers a market value of 722 billion rand ($54 billion).

Another of the Naspers’ successful bets is its $165 million investment in Russian Internet portal Mail.ru in 2007. It’s 29 percent stake is worth about $1.2 billion now after Mail.ru shares fell by more than half since the beginning of the crisis in Ukraine last year.

“Russia is very oil dependent and we’ve seen political instability that has hurt the economy, he said. “Where those two factors are going to go, I can’t predict.”

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