To this day, when people look back on the big fish in China's Internet industry, they are full of love-hate hatred between Chinese entrepreneurs and top dollar VCs.
VCs from Silicon Valley, led by their Chinese partners, walked along Zhongguancun Street looking for China's Google, China's Yahoo, China's Amazon. In this extraordinary excitement, the 2,000-fold return that Son earned on Ali is still the most powerful memory of this Korean-Japanese in Silicon Valley, and it also writes people's imagination about the return on investment.
The flights between China and the United States over the Pacific Ocean and the investment figures of US dollar funds record the glorious days of the Internet.
However, it was not until Tencent's successive announcements of major shareholders reducing their holdings in 2022 that people discovered that the biggest winners of this wealth campaign turned out to be far beyond the spotlight on the African continent.
Naspers, a South African media conglomerate that has never written about influential China, has become a somewhat more China-savvy institutional investor than Son.
In 2001, after buying 46.5% of Tencent's shares for $32 million, Tencent's growth since its listing has yielded a cumulative return of more than 7,000 times in two decades, and dividends alone have taken away 25.2 billion Hong Kong dollars in 15 years. At the time of Tencent's prosperity, Naspers' holding market value was close to 2 trillion Hong Kong dollars; Even if the goose factory loses its market value, the shares in Narspers are still worth trillions of Hong Kong dollars, and no matter what time point is cut, this investment is almost the most successful case in human history.
Ton Vosloo, current chairman of Naspers, said: "Tencent is the jewel in the crown of Naspers and the sharpest arrow in the quiver. If Tencent coughs, then Naspers will develop pneumonia. ”
The overly dazzling success even made their reasons for reducing their holdings smell of Versailles. According to Bloomberg, Naspers has long been frustrated that his Tencent stake is worth more than his own company, and the reduction is an attempt to close the gap.
In fact, as a listed company, under the support of Tencent's super base, Naspers, which started selling newspapers in South Africa, has walked out of a completely different curve from other traditional media groups.
The question is, how did Naspers, a South African newspaper conglomerate, invest its most successful investment in Tencent?
01
The South African institution that can't be invested, the Shenzhen company that no one wants
In the early fall of 1995, Netscape, the first commercial browser, went public in the United States, and the speed with which the stock price soared shocked Wall Street antiques.[6] The Wall Street Journal commented: "It took General Dynamics 43 years to get $2.7 billion worth on the stock market, and Netscape took about a minute. ”
Netscape laid the template for the IPO of modern technology companies, and with the help of the enthusiastic end-of-the-century bull market, the Internet's earliest myth of wealth creation began, and even Son's time machine theory began to shine - countless overseas VCs turned their eyes to China in a blink of an eye, touching the NASDAQ to cross the Yangtze River and the Yellow River.
Compared with the BAT (Baidu, Ali, Tencent), which later scooped up 26 Latin letters, then TMD (Toutiao, Meituan, Didi), and later PKQ (Pinduoduo, Kuaishou, Qutoutiao), the most popular projects on the Chinese Internet at that time - Netease, Sina, Sohu, all still had a simple portal appearance.
In 1998, NetEase became the number one website on the Chinese Internet, and Ding Lei recalled: "Wall Street investors rushed to give us money, and the company was only about ten people at that time. [1] When Sina went public, it found Morgan Stanley as a partner, and the big bosses of investment banks did not understand the Internet, let alone the Chinese Internet, and only temporarily made up for the original Internet black words such as "click rate" and "IPC" ten minutes before the meeting. But it doesn't matter, they just need to know that .com business can make a lot of money.
Nasdaq welcomes Sina's electronic banner, photo pixels reveal age
Naspers, who are far away in South Africa, also smelled the business opportunity and set up an office in Hong Kong, and their credo is "throw pasta on the Great Wall [3]" - after all, China is a vast land and can always stick a few gold bricks.
Compared with institutions such as Walden, Barings, and RSCO, which bet on the three major portals, Naspers at that time had a good life in China, and this humble South African company not only could not grab a seat at the negotiating table for good projects, but the "pasta-throwing" strategy did not work.
At the end of the nineties, Naspers invested in many projects in China, such as Century Internet, Huati.com, Pulse Network, and Yifu Financial Network, and also became a strategic investor in a similar way, helping the invested companies introduce Western executives, but in the end, due to unsatisfactory and unable to find a profit model, it lost more than 80 million US dollars in China.
The point is that the money did not catch up, and the loss did not pull down.
As the Nasdaq index began to plunge from a high of 5048 in March 2000, the millennial Internet bubble burst, Son's assets quickly shrank by 95%, Naspers' stock price also plummeted by 90%, and the first annual loss-making earnings report came with a new century.
While Naspers' Hong Kong office was considering unloading burdensome Chinese projects, across the river from Shenzhen's SEG Science Park, a small company called Tencent was scramling for money.
Tencent's first office in SEG Science Park
At the end of 2000, Tencent launched the QQ 2000 version, with 500,000 new users per day[4]. Everything looks thriving. But the problem is that QQ has never been profitable, and the constantly new servers are like a never-ending gold-swallowing beast, and even the original gold owner father IDG feels that raising a baby is not easy and has the intention to retreat.
After the bubble burst in the entire Internet wave, almost all of the dozens of Internet companies invested by IDG were hit hard and urgently needed to cash out. In the environment at that time, instant messaging was just a marginal business with a vague future, and IDG began to look for someone to take over Tencent.
But to be honest, there were not many VCs to choose from at that time, and in the late 90s, when professional venture capital managers from all over China had dinner at the Garden Hotel in Guangzhou, Xiong Xiaoge scanned the audience and found that not a single table was seated [5]. IDG visited Sina, Yahoo, Lenovo and other large companies, but no one was willing to buy it.
When IDG was recruiting to take over the company, Naspers' vice president of China, Dawei (real name: David Wallerstein), was wandering around China under his Chinese name, and he found that every local Internet café had QQ on his computer, and some general managers even printed QQ numbers on business cards. This made the net bang on the door of Tencent's office with great interest.
A frustrated South African institution, an embarrassed Shenzhen company, met by chance of fate.
Ma Huateng was shocked by the data displayed by the website, when the number of users of QQ in China far exceeded the entire Internet population in Africa. He excitedly brought his plan to invest in Tencent to the Naspers conference table, and was opposed by almost all the top management: Your kid has invested in so many bad companies in China before, and now he still wants to pay for it?
But Netawei had an instinctual insistence on this, and finally Naspers' South African CEO Koos Bekker lined up and clapped stud: Buy! With the last $32 million in available cash, Naspers bought a 46.5% stake from IDG, Yingke Telecom and Tencent's main founders, becoming Tencent's largest single shareholder.
Looking back today, choosing not to vote for Tencent requires a reason. But at the beginning of the millennium, when the mountains and rivers were running out, betting on an unprofitable, unwanted Chinese Internet company could only rely on reckless luck.
If you think the description of luck is too mysterious, you can also borrow Voltaire's words: "There is no such thing as fate, everything is nothing more than testing, punishment or compensation." ”
In June 2001, Naspers and Tencent struck a deal. At the end of this month, Tencent broke even for the first time. Generous compensation is traversing the storm at the Cape of Good Hope, opening its arms to this media company far away at the southern tip of the continent.
02
Newspaper giants, set-top box giants and Internet hunters
That's right, this company that did all its VC work in the early days of the Chinese Internet was mainly engaged in media, which used to be the most traditional newspaper media. But it was his dedication to "not doing business" that allowed Naspers to turn himself into a growth stock.
In 2014, the market capitalization of Naspers' stock reached $44 billion, a 100-fold increase from 20 years earlier. By comparison, the New York Times has a market capitalization of about $2 billion, and stock prices are still at mid-80s levels.
Michael Moritz, a partner at Sequoia Capital in Silicon Valley, couldn't help but post an eloquent article titled "Where the New York Times Goes Forward", taking advantage of Naspers' success to criticize the pedantic and backward digital transformation of media peers.
As a former Time magazine Silicon Valley reporter, Michael Moritz has changed careers quite successfully, and the investment list is shining, covering Google, Yahoo, eBay and other famous companies, standing on the cusp of the Internet revolution. This resume gives him the confidence to take the media industry hard[7]:
"The New York Times missed two media revolutions on television and online... And Naspers' management decided to ride rather than fight the wave of technology, outsmart and outsmart the rest of the world's old-fashioned media companies struggling with the challenges of the internet. ”
Looking back, Naspers' wealth code is one sentence: change your life and make yourself a big profit.
At the end of the nineteenth century, a South African diamond magnate invested in the creation of a Dutch-language newspaper called Civicto, which was the original origin of Naspers. In the early twentieth century, Naspers expanded nationally through numerous acquisitions, from newspapers to books, and gradually became the largest publishing company in South Africa and Africa.
But the good times did not last long. In the eighties, global cable television boomed, and the same wave spread to South Africa. At the time, SABC, South Africa's first television station, was so popular that it jumped from zero to nearly a quarter of the country's advertising revenue in five years, and print media was hit hard, with only one of Naspers' four newspapers making a profit.
Just as the Naspers hierarchy was at a loss, an oceanic phone call came into the office. Koos Bekker, a young South African student at Columbia University in the United States, volunteered to help Naspers build an HBO-like pay-TV system M-net in South Africa.
Koos Bekker, who came from television advertising and had no affection for the print newspaper industry, openly blasted: "Newspapers are history." Under his strong impetus, Naspers, which had always been known for its conservative management, began to transform.
The first from the left is Koos Bekker
Naspers invested a lot of money in M-Net, losing 100 million in the first year, and the set-top box did not sell a few.
But the situation soon reversed, and as South Africa's apartheid policy collapsed, the offline entertainment industry was frustrated, and the turbulent outside world made people more willing to spend the money on fuel to buy a TV set-top box and immerse themselves in the Truman world of kinescopes. M-net subscriptions climbed, became profitable quickly in the 90s, and expanded into other parts of Europe and Africa through asset acquisitions.
The nineties were also a period of mergers and acquisitions by media conglomerates, and media giants such as Mercado and Berlusconi struck lightning at the negotiating table and expanded the empire through a large number of acquisitions. Not to be outdone, the New York Times Group spent more than a billion yuan to buy negative assets such as The Boston Globe and The Worcester Telegraph [9].
Compared with this nostalgic clothing play of world-class newspapers, Naspers does not have so much heavy historical accumulation (bag) (burden), and has drastically abandoned its newspaper genes.
With the excellent performance of the cable business, Naspers was successfully listed on the Johannesburg Stock Exchange. In its first twelve months, shares soared 322 percent to become the best-performing stock on the Johannesburg Exchange in 1994 — and while the global press industry struggled with profitability, Naspers executives were smoking cigars on the South African Exchange and welcoming thousands of millionaires.
Naspers, who first tasted the sweetness of the media transformation, decided in 1997 to put Koos Bekker as CEO to further steer. The new blessed land Koos Bekker is targeting is the Internet. He set a new route for Naspers: an Internet-based voyage around the world. Other businesses either make money for it or get out.
Backed by the cash cow of pay-TV, Koos took Naspers to test the dot-com market, pouring billions of dollars into more than 100 tech companies around the world, and the stock price continued to balloon. However, the good times did not last long, and as mentioned in the story above, the 2000 Internet bubble burst, and the stock price of Napers fell by 90%. Koos lost 2/3 of the company's market value during his first term, joking that he would update his resume.
It was at the time of the crisis of "investing in technology before, submitting resumes this year" that Netdawei broke into Koos' vision with the embarrassed Tencent, not only saving the man's midlife crisis, but also finding a super base for all of Naspers' asset portfolio.
Koos Bekker, who pulled the trigger, was commented by his biographer: "He turned a traditional print media company into a slot machine in Sun City—a machine that makes a lot of money." ”
03
Lucky Slots
The Johannesburg Exchange (JSE) is the largest stock exchange in Africa. Since taking a stake in Tencent, Napers has become the most special presence on the exchange.
David Shapiro, chief global equity strategist at Sasfin Securities[10], has pointed out that many investment managers rely on JSE's exchange-traded funds (ETFs) and other passive index-related instruments, two stocks that underpin South Africa's savings sector. The weight of Naspers in the JSE benchmark index was as high as 20%, which is 5 years heavier than the weight of Kweichow Moutai in the Shanghai and Shenzhen 300 years
Riding on the dividends of China's Internet economy, Naspers has become a core asset in the South African market through cycles.
At the beginning of 2021, South Africa was struggling with the epidemic, national martial law and widespread unemployment, but in distant China, Tencent's share price is approaching an all-time high of 775 yuan, and Naspers' share price has strengthened, even driving the entire Johannesburg Exchange to buck the sluggish domestic economy, and all stock indexes increased by 11% compared to the same period in 2020.
"Naspers is essentially a holding company that makes a big investment in Tencent." Investment managers in Johannesburg agree on this.
Over the years, Naspers has cast a wide net outside of Tencent, investing in many companies in the fields of Internet finance, food delivery, and technology. Among them, there are many good cases, such as BYJU'S, which invested with Tencent, which is now India's largest online education platform and delivery group Delivery Hero, claiming to rank first in GMV in the Asia-Pacific region. The mail.ru held before the Ukrainian-Russian war was the second largest web browser in Russia.
An overview of Naspers' investment landscape in 2022, source: Prosus Annual Report
In terms of returns, Naspers has also made significant profits in some companies. For example, when he quit in 2018, he received 3.6x on Flipkart and 1.6x on Allegro.
But in addition, many Internet companies held by Naspers have not yet escaped the curse of burning money for growth, the profit model is unstable, and the stock price trend is like a roller coaster, such as Delivery Hero, which holds 27% of the shares, and faces emerging delivery companies in Asia, and the stock price plummeted by 40% after the release of the ugly annual report in 2021.
The top student who can provide stable returns is always Tencent.
Tencent's revenue grew at a rate of 50% in 2017, while the value of dozens of other investments and businesses of Naspers, including media, e-commerce and pay-TV, has fallen to minus R340 billion over the past two years. A year later, Naspers broke the warm vow of "holding Tencent for 10,000 years" and sold 2% of Tencent shares.
That breath brought $10 billion in cash to Naspers' books, much of it going into online classifieds, food delivery, payments and edtech, that is, using Tencent to transfer payments to other uncontested projects.
Thanks to Tencent's blessing, Naspser has the capital to attack trial and error, the media attribute is further weakened, and it has gradually turned itself into an equity investment company, which is a difference from a group of media companies struggling to transform and fall into the vortex of mergers and acquisitions.
USA Today, which Reagan called the classic masterpiece of the American Dream[13], was eagerly spun off by shareholders in 2013, but it could not stop the group from losing money continuously, falling stock prices, and falling into a storm of layoffs after the outbreak of the new crown. A generation of media tycoon Merckor may also be concerned about this, and his media empire will no longer be able to show its style after entering the Internet age.
Of course, Naspers isn't the only media group that has jumped on the internet wave.
In 1985, the newspaper giant Forum Group invested $5 million in AOL, which coincided with the dot-com bubble, and Tribune reaped staggering multi-billion dollar returns. Tribune was still nostalgic, and then used the money to buy the Times Mirror Group, where the Los Angeles Times was located, and soon fell into a four-year bankruptcy and delisting storm.
Traditional media are trying to save themselves from the wave of the Internet, such as launching mechanisms such as digital content and membership paywalls, to catch up with the late train of the Internet era.
After a painstaking effort, the New York Times reached the world's largest paid subscribers of 7.5 million. At the same time, Netflix has more than 220 million paying subscribers and Disney has more than 100 million subscribers worldwide, a figure that is even one-tenth of HBO's 76.8 million subscribers. It can be seen that the news media is in decline on a global scale.
Caixin has 510,000 paid subscribers, which has ranked tenth in the world, Visual Capitalist
Times have changed.
Back in that 2014 essay, Moritz sharply criticized The New York Times' efforts for appearing so futile that it "failed to show how Internet assets dedicated to widespread news and information could generate significant amounts of money." And the long-reborn Naspers are even more nostalgic, Koos Beeker is candid to the point of almost caustic[14]: "Buy the New York Times? We have the money, but not interested. ”
In October 2022, thousands of New York Times employees went on strike and took to the streets to demand a pay rise
04
End
When Duan Yongping took BBK employees to copy Apple, China's mobile phone industry was experiencing the baptism of the first year of smart phones. In the following years, OV gradually gained a foothold in the Chinese market, and Duan Yongping's purchase of Apple has not stopped.
He wrote on his blog: "I think we can take down Apple, how can I buy Apple stock?" I'm sure I wouldn't say that. ”
This kind of young people work hard in industry, and I will invest in the struggle of Apple and Moutai, which is similar to Naspers' Internet transformation - no one can guarantee that the industry they are in will always be at the head of the tide. When a new technology and new form are destined to smash the traditional model and format, instead of involuting and transforming itself, it is better to bet on the top companies in the sunrise industry.
This attitude of speculating in stocks and giving up self-help to hand over the fate to others instead allowed Naspers to live at the poker table. This seems to be a realistic drama full of irony: as long as the investment is done well anyway, no one knows about the main business, and it is not a big deal.
But great success often masks luck that is too accidental. When the company has only the last cash left on its books, will you save yourself or bet on someone else's unclear future? Who knows 100% that ALL IN's bet is Tencent, which is Jedi Reversed, or Sohu, which is now delisted?
It is better to admit that fate is often in a mysterious moment.
Resources
[1] Thirty years of agitation, Wu Xiaobo
[2] Fifteen Years of Boiling: The Internet in China 1995-2009, Lin Jun
[3] Koos Bekker’s Billions，T.J.STRYDOM
[4] Tencent Biography, Wu Xiaobo
[5] A Brief History of Chinese Venture Capital, Investment Community Website PEDaily
[6] HISTORY's Moment in Media: The '90s Were All About Netscape, mediavillage
[7] Where the New York Times Could Have Been, Michael Moritz
[8] Why a $200bn stake in Tencent is a problem for South Africa's Naspers, the national news
[9] The New York Times' Loss to the Internet, CCTV Development Research Center Xiao Pinpin
[10] Why SA shares hit a record high - despite domestic gloom, businessinsider
[11] Why Naspers just committed another $500M to Letgo: the global marketplace battle, dealroom.co
[12] Prosus Annual Report
[13] The end of the newspaper industry, the spin-off and disintegration of the six major media giants in the United States, Titanium Media
[14] Naspers can buy New York Times but not interested，moneyweb
Editor: Zhang Jieyu
Visual Design: Shurui
Draftsman: Ren Tongyao / Zhang Jieyu
Responsible editor: Zhang Jieyu