Naspers would probably continue losing money on its e-commerce investment for another two to three years “until it breaks through the barrier”, group chief executive Koos Bekker told shareholders at Friday’s annual general meeting.
During the 2013 financial year, Naspers spent R4.3 billion on development. About R3.2bn of this was spent on developing its e-commerce business, which is focused on classifieds and “e-tailing”. Bekker’s comments were in response to a question from a shareholder about the merit of investing so heavily in e-commerce.
Bekker said Naspers’s business had been through various stages during its lifetime, “first it was a print company, then it moved into pay-TV (through DStv), then to the internet (Tencent and MailRU) and now focuses on e-commerce.”
The success of changing focus is evident from a breakdown of the group’s profit. In 2013, 52 percent of the R14.5bn trading profit was generated by pay-TV; the internet business accounted for 43 percent and print contributed 5 percent, which was equivalent to a mere R743 million.
In 2013, the e-commerce division reported a doubling in revenue to R11.4bn and more than double in trading loss to R2.2bn. The largest source of e-commerce revenue for Naspers is eastern Europe followed by South America.
The main focus of its e-tailing business, which analysts say is an attempt to build an Amazon-type function, involves facilitating third-party business-to-consumer and consumer-to-consumer transactions through its proprietary platform. The group’s annual report notes that one of the major opportunities for further development and expansion is in mobile “with a number of apps for various services already developed”.
With regard to Naspers’s online classified business, the annual report states that during the year the online classifieds portfolio was strengthened. “We increased product performance, simplified and improved the quality of the organisation and enhanced our competitiveness.” However, it goes on to warn that this business was in the early stages of development and “generating returns from these investments is still some way off”.
Bekker referred to the global trends in e-tailing and said that while the margins were thin the potential for revenue growth was substantial.
He said that the e-commerce classifieds would run a free site for about five years as it built up a base. “When we’re big, we can charge.” Meanwhile, he said: “You won’t see us making money, but there’ll be many ‘hits’.”
On Friday the share price closed at R848.37, 2 percent down on the week, but 76 percent ahead on the year. This recent strength is in line with the performance of its most valuable investments, China-based Tencent and Russia-based MailRU.