Image source @ Visual China
Text | Good looking business, the author | Monday, the editor | peace of mind
As The 20-year gold boom of China's two internet giants draws to a close, naspers and SoftBank are also out of time. Reducing their holdings of assets with small appreciation potential, to chase the next Tencent, Ali has become their inevitable choice.
An announcement knocked out Tencent's market capitalization of HK$440 billion.
This "smashing" party is called Naspers.
At noon on June 27, Tencent Holdings announced that its major shareholders, Prosus (the company is a majority stake in Naspers), and Naspers will start a long-term, open-ended repurchase program and will raise repurchase funds in an orderly manner by selling Tencent Holdings held by Naspers Group on the market.
The number of Tencent shares sold by Naspers on a daily basis is expected to account for a fraction of Tencent's average daily trading volume. For example, if the Naspers Group had implemented a buyback program in compliance with European regulatory restrictions over the past three months, the average number of Tencent shares sold each day would not exceed 3%-5% of Tencent's average daily trading volume.
In simple terms, Naspers and Prosus want to buy back their own shares, but they have no money in their hands and need to sell some of the Tencent shares they hold to raise funds.
As soon as the announcement came out, Tencent turned from 4.16% to 0.68% in the afternoon opening minute, and the market value instantly evaporated by about HK$200 billion. Tencent closed the day down more than 1.5%.
From June 28 to 30, Tencent's stock price continued to open low and go low. As of the close of trading on June 30, Tencent's market capitalization has evaporated by more than HK$440 billion from the high point before Naspers' announcement.
It is not yet known how much and for how long Naspers' continued reduction will affect Tencent's share price.
Naspers said in the announcement that they launched the share repurchase program to boost the net asset value of Naspers and Prosus. At present, the net asset value of both companies is undervalued.
The repurchase program is indefinite, and the main source of funding for the repurchase program is to reduce the holding of Tencent shares.
Naspers said they will continue to buy back as long as their net asset value continues to run low; This means that their reduction in Tencent may also be indefinite.
When the stock price is depressed, listed companies usually use repurchases to boost the stock price and safeguard the interests of shareholders.
In recent years, Alibaba's major shareholder, SoftBank, has also continued to buy back shares. Following the launch of a record 2.5 trillion yen repurchase program in 2020, SoftBank again announced a 1 trillion yen (about $8.8 billion) share repurchase program in November 2021.
The gradual realization of Alibaba's shares is an important way for SoftBank to raise funds for stock repurchases, as well as reduce debt and obtain liquidity.
It is worth mentioning that for a long time, Naspers and SoftBank are the largest shareholders of China's two major Internet giants, Tencent and Ali, respectively; They all bet on China's Internet industry at the beginning of this century, and have held Tencent and Ali for more than 20 years, and have also obtained thousands of times returns, which is regarded as a myth in the investment community.
As The 20-year gold boom of China's two internet giants draws to a close, naspers and SoftBank are also out of time.
Coupled with global macroeconomic and geopolitical factors, the entire Internet and technology industry has entered a trough, the value of assets has shrunk significantly, and assets with small appreciation potential have been reduced, and chasing the next Tencent and Ali has become their inevitable choice.
Tencent and Ali become major shareholders of "cash machine"
In 2001, Naspers invested $32 million to buy a 46.5% stake in Tencent. Even though Tencent's current market capitalization is at an all-time high, Naspers' stake in Tencent is still worth $126.2 billion after two reductions.
Naspers has held this investment for more than 20 years and has a total return of more than 4731 times.
In 2000 and 2004, SoftBank Group invested $20 million and $60 million in Alibaba, holding up to 34.4% of Alibaba's shares after multiple rounds of adjustment. It has been held for more than 20 years and has a total return of more than 2,000 times.
Today, the most stable major shareholders in the history of Tencent and Ali are now picking fruit - Naspers and SoftBank are gradually reducing their holdings and leaving.
The latest announcement of the reduction is already Naspers' third plan to reduce its holdings against Tencent.
Source: HKEx
Naspers' earliest reduction in Tencent occurred in March 2018. At that time, it reduced its holdings of 189978300 shares of Tencent stock at HK$405 per share, accounting for about 2% of Tencent's shares, totaling about $10.6 billion.
After this reduction, Naspers also holds a 31.17% stake in Tencent.
In 2019, Naspers spun off and put its international Internet assets, including Tencent, Flipkart, Russia's Mail.ru, Ctrip, etc., into its holding company Prosus. Prosus was listed on the Amsterdam Stock Exchange in the Netherlands in September 2019.
After that spin-off, Naspers' 31.17% stake in Tencent was all taken over by Prosus.
In April 2021, Prosus, through its subsidiary MIH TC Holdings Limited, reduced its holdings in 191,890,000 shares of Tencent shares, equivalent to approximately 2% of Tencent's issued share capital, at a price of HK$595 per share, a total of US$14.6 billion.
According to Refinitiv, this was the largest stock block trade in the world up to the time. After this reduction, Prosus' shareholding in Tencent dropped to 28.86%.
In order to calm the market sentiment and take care of Tencent's feelings, Naspers gave an explanation for both reductions. It said that the proceeds from the first reduction were mainly used to expand the business in different regions, as well as future acquisition integration; The purpose of the second reduction is to increase financial flexibility, including further outbound investment and replenishment. After each reduction, it has pledged not to sell Tencent shares for the next three years.
Unfortunately, it reneged on its promise. On June 27, 2022, it announced that it would reduce its holdings in Tencent again, and indefinitely.
After all, it feels too cool to have a large amount of money in the account at a time. Through two reductions in Tencent, Naspers and Prosus made a combined profit of about $25 billion.
In addition, at the end of last year, Tencent "dividend-based" reduced its holdings in JD.com, distributing 460 million JD.com Class A ordinary shares (with a total value of about HK$127.7 billion) to eligible shareholders.
Through this share split, Prosus acquired about 4 percent of JD.com through its subsidiary MIH TC Holdings. On June 24, Naspers completed the sale of this part of JD.com's shares, making a profit of $3.67 billion.
Tencent's market capitalization was close to a trillion US dollars at its peak, and it has repeatedly won the top of China's highest market capitalization company and the world's most valuable social media company.
For Naspers and Prosus, Tencent is like a security base and a cash machine when there is a need for funds. Even if Tencent's market value today has shrunk by half from its highest point, it is still a huge "gold mine" for the majority shareholder Naspers.
In recent years, Alibaba has played a role in the security base of softbank, the major shareholder. Whenever SoftBank encounters difficulties, it is almost inevitable to reduce its holdings in Alibaba and obtain "life-saving money".
In 2016, SoftBank reduced its stake in Alibaba for the first time in its 16th year of holdings, when it announced it would sell at least $7.9 billion worth of shares in an effort to reduce the company's liabilities and increase liquidity.
According to public information, SoftBank made some investment mistakes at that time, the market value of assets shrank sharply, and the company's total debt reached $108.2 billion.
After the first reduction, SoftBank's stake in Alibaba fell from 32% to about 28%.
In June 2019, SoftBank again reduced its holding of Ali's 73 million American Depositary Shares (ADS) to a pretax profit of about 1.2 trillion yen (about $11.12 billion).
According to the financial report for fiscal 2019 as of March 31, 2020, SoftBank Group's net loss attributable to the parent company was as high as 961.576 billion yen, a major reason for the vision fund's huge loss of investment.
At the end of March 2020, SoftBank said it would cash out $14 billion from Alibaba, or reduce its holdings by 10% of Alibaba's shares.
In fiscal 2021 (April 1, 2021 – March 31, 2022), SoftBank Group's net loss attributable to shareholders of the parent company reached 1.7 trillion yen (about 89.76 billion yuan), the largest loss in its history.
Whether SoftBank continues to reduce its holdings of Alibaba to obtain life-saving money has become the focus of market attention.
Investment bank Jefferies mentioned in the research report that SoftBank needs $40 billion to $45 billion in cash in 2022 to fund its private equity investments and buybacks, and it is possible to raise funds by selling assets instead of borrowing, and reducing Alibaba is one of the fundraising options.
Jefferies estimates that SoftBank may have reduced its holdings of 20 million shares of Alibaba in the fourth quarter of 2021.
Source: Longbridge Securities
According to S&P data, SoftBank currently holds 24.98% of alibaba's shares and is still the largest shareholder.
Naspers, SoftBank's tough times
As Tencent's largest shareholder for more than 20 years, Naspers is low-key and mysterious in China's venture capital community.
In fact, it has a pivotal position in the global internet and technology fields, and many unicorns have their presence behind them.
The "South African Newspaper" is the Chinese translation of Naspers, a company founded in 1915 and headquartered in Cape Town, South Africa. It started out as a traditional print media business, with 60 consumer newspapers and periodicals, including the highest-selling newspaper, Daily Sun.
After years of development, today's Naspers is already a huge investment empire. Its investment business involves: e-commerce (including classified information, food takeaway, payment and financial technology, education technology, e-commerce services, etc.), social and Internet platforms, media and other fields.
For example, in the field of food delivery, Delivery Hero, iFood, and Swiggy are all projects invested by Naspers.
Headquartered in Germany, Delivery Hero is one of the global food delivery giants with a current market capitalization of €8.4 billion. Swiggy, India's largest food delivery platform, was reported in the media earlier this year at its latest valuation at $10.7 billion. Headquartered in Brazil, iFood is currently the largest takeaway app in South America. Naspers holds a 54.68% stake in Ifood through Prosus.
But in fiscal year 2022 (April 1, 2021 - March 31, 2022), Naspers suffered a difficult time.
"Continued global chaos and uncertainty have led to continued economic turbulence." Naspers said it straight to the point in his fiscal 2022 earnings report.
Source: Naspers Fiscal 2022 Earnings
In fiscal 2022, Naspers Group revenue increased 24% year-over-year to US$36.7 billion in terms of economic benefits; But growth was lower than 33.9 percent in the year-ago quarter.
In terms of operating profit, six of the nine business segments involved in Naspers experienced varying degrees of operating losses in fiscal 2022, with a total loss of $1.337 billion.
Among them, the food takeaway sector had the highest operating loss, reaching $724 million, and the loss doubled from the previous year. The e-commerce business segment to which food takeaway belongs has an operating loss of US$1.12 billion.
In fiscal 2022, the Naspers Group achieved an operating profit of US$5 billion despite a 10% year-on-year decline in operating profit. Behind this, mainly due to Tencent's contributions - up to $6.273 billion.
Naspers mentioned in the earnings report that while achieving strong revenue growth through its portfolio, like many other technology companies, naspers Group faces significant macroeconomic and geopolitical headwinds, which led to sharp fluctuations in capital markets in the second half of fiscal 2022.
The Russo-Ukrainian war, inflation, and rising interest rates all brought about increased costs and uncertainties. In recent months, valuations of companies in the global technology and internet sectors have fallen significantly as risk appetite has declined significantly.
These factors have led to its net worth suffering its first decline in years, and Naspers believes that the discount on its total assets has "fallen to an unacceptable level.".
As of June 29, Naspers had a market capitalization of only about $30 billion on the Johannesburg Stock Exchange, while its net worth of assets was $70.7 billion, a discount of more than 57%.
Naspers share price movement on the Johannesburg Exchange (currency: ZAR)
Prosus' market capitalization is also significantly discounted against its net worth. As of June 29, 2022, its net asset value was 157.7 billion euros, and as of June 29, its total market capitalization on the Dutch stock exchange was only 883.4 euros, a discount of nearly 44%.
Prosus stock price movement on the Amsterdam Exchange (currency: EUR)
Naspers said taking proactive steps to reduce the discount was their priority.
Relative to Naspers' low profile and mysteriousness, Son zhengyi and his SoftBank Group are well known in the Chinese venture capital community.
Son, once known as the "Investment Emperor," founded SoftBank in 1981 at the age of 24 and sent it to the Tokyo Stock Exchange in 1994. After years of development, SoftBank Group has gradually become a comprehensive investment company, mainly engaged in network and telecommunications related investments.
At the age of 18, he earned the first pot of gold 1 million; Invested in Yahoo, the highest return broke 100 times; Invest in Alibaba, the maximum return is 2000 times. These are son's achievements.
In 2017, he launched the 100 billion vision fund, gambled on technology stocks, and exposed his "gambler" style, which eventually pulled him off the altar and dragged SoftBank Group into the abyss of loss.
In fiscal 2019 (ending March 31, 2020), SoftBank Group suffered an operating loss of 1.35 trillion yen (approximately 87.5 billion yuan) and a net loss of 750 billion yen.
It was also the first fiscal year loss for SoftBank in more than a decade. Since then, it seems that the good fortunes of Son Anderson and SoftBank Group have been exhausted, and SoftBank's financial performance has deteriorated.
In fiscal 2021 (ending March 31, 2022), SoftBank Group was in an unprecedentedly bad situation: In that fiscal year, SoftBank Group's net loss attributable to shareholders of the parent company reached 1.7 trillion yen (about 89.76 billion yuan).
This is the worst loss in SoftBank Group's four-decade history, and the largest loss in the history of its funds since its inception.
The Vision Fund was the culprit behind SoftBank Group's fiscal 2021 losses. During this period, the Vision Fund lost 2.64 trillion yen (about 1,393.4 billion yuan).
After the release of the 2021 annual report, Son Zhengyi said that the world began to enter "chaos mode" because of the new crown epidemic and the Russian-Ukrainian conflict, and he stressed that now is the time for SoftBank to take defensive measures, rather than the radical it once was.
At the beginning of the 21st century, Naspers and SoftBank both bet on Micro-Hours, and at Tencent and Ali, they were bold enough to invest, and they were greedy and patient enough. As a result, they also created two investments that have been held for the longest time and have the highest returns in the history of the Internet in China.
Today, 20 years later, everything has changed. Both Naspers and SoftBank itself are in trouble, a bit of a mud bodhisattva crossing the river.
Crazy for 20 years, it is difficult to reproduce
The past 20 years have been the 20 years of mutual achievement between Naspers and Tencent, SoftBank and Alibaba.
In Naspers Group, Tencent has long played the role of the largest contributor to revenue and profit, and the pillar of assets; Alibaba has long accounted for half of SoftBank's total assets.
After 20 years of crazy growth, China's Internet has entered the industrial Internet stage from the consumer Internet, and the supervision of the rectification and management of Internet giants has become more stringent. The growth rate of the Internet industry began to slow down, and under the volume of Tencent and Ali, the slowdown was particularly obvious.
In Q4 2021, Tencent achieved total revenue of 144.2 billion yuan, an increase of 7.9% year-on-year, setting the slowest revenue growth since Tencent went public in 2004.
In Q1 2022, Tencent's revenue growth rate further slowed down, with a year-on-year growth rate of only 0.1%, and the growth was almost stagnant.
In terms of profitability, for three consecutive fiscal quarters since Q3 2021, Tencent's net profit (Non-IFRS) has been negative year-on-year, which is something that Tencent has not seen in the past 10 years.
Ali also said goodbye to the high growth of the past.
Third quarter of fiscal year 2022 (calendar year 2021. Q4), Alibaba's revenue increased by 10% year-on-year, lower than market expectations. Among them, the customer management revenue of Taobao Tmall in this quarter increased by -1% year-on-year, which can be said to be unprecedented in Ali's history.
Fourth quarter of fiscal 2022 (calendar year 2022. Q1), Ali's revenue increased by 9% year-on-year, and the growth rate of quarterly revenue fell below 10% for the first time.
Naspers has always chased high growth; Son Zhengyi is known as "Mr. Ten Times", and they have an almost crazy desire for rapid growth. Tencent and Ali, which have now entered a stable period, are increasingly unable to match their tastes in terms of growth rate.
Prosus mentioned in its earnings report that due to the impact of regulation and the new crown epidemic, Tencent's growth rate has slowed down and it is facing a difficult macroeconomic environment.
According to the Nikkei Chinese Network, on June 24, Son Zhengyi said at the Regular Shareholders' Meeting of SoftBank Group, "Although there was a period of time in the past when Alibaba accounted for more than half of The SoftBank Group's stock assets, Alibaba now accounts for about 20%. ”
In fact, in the past fiscal year, both SoftBank and Naspers have made new investment layouts.
In the case of Naspers, for example, they invested $6.2 billion in fiscal 2022, some of which was used to increase their stake in existing investments and some to invest in areas where there are opportunities for appreciation in the future.
Naspers said that in order to find a course in the chaotic time, they decided to prioritize the funds to support the development of existing businesses and more prudent asset liability management, maintaining adequate cash flow.
And to provide a strong guarantee for all this is to sell Tencent.