Jonathon Kennedy-Good's Insights on Tencent's Value within Naspers Company
Navigating Tech Giants: A Comparative Analysis of Naspers, Prosus, and US Peers
For South African investors in Naspers and Prosus, the past year has been a rollercoaster ride, with their Tencent holdings outperforming US peers – albeit with a fair dose of volatility.
During 2024, Tencent's core gaming business experienced accelerated growth, leading to consensus earnings and free cash flow upgrades. This performance played a significant role in Tencent's outperformance, explaining part of its success.
In addition, a thawing of government relations has aided China's tech sector, including Tencent. With leading Chinese tech players receiving public support from high-level politicians, perceived regulatory risks have shown a decreasing trend. This was particularly relevant as the global race for AI supremacy accelerated.
Meanwhile, US tech giants – Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla – Dominant forces in the AI landscape, made significant announcements that boosted AI-led capital investment for the years ahead. However, US policymakers' use of tariffs in a transactional manner caused policy uncertainty, raising the relative cost of capital for US tech firms and leading to lower valuations and multiples compared to Chinese counterparts.
Naspers and Prosus, on the other hand, primarily garner their influence from their stake in Tencent Holdings. While Tencent's AI advancements, integrated into its ecosystem, are crucial to its performance, regulatory challenges and economic uncertainties in China impact its growth trajectory and, by extension, the performance of Naspers and Prosus.
In terms of e-commerce, Prosus aims to boost profitability, targeting strategic growth in food delivery and fintech. Their stated goal is to achieve $400 million in e-commerce adjusted EBIT for the fiscal year ending March 2025. In contrast, US tech giants have been investing heavily in AI technologies, driving advancements in the field.
While US companies like Alphabet, Amazon, and Microsoft focus more on pushing the boundaries of AI, Naspers and Prosus favor leveraging existing investments and building local champions in emerging markets. They have also made strategic investments in Tencent and other tech ventures.
As the global AI race between US and Chinese tech companies intensifies, Naspers and Prosus continue to navigate this complex landscape, balancing strategic investments with market dynamics. It remains to be seen how they will fare against their US counterparts in the race for tech supremacy.
- For investors in Naspers and Prosus, the Tencent holdings' outperformance, despite volatility, has been noteworthy compared to US peers in the past year.
- In 2024, Tencent's core gaming business saw accelerated growth, leading to improved earnings and free cash flow, contributing significantly to its outperformance.
- China's tech sector, with Tencent included, has benefited from a reduction in regulatory risks due to improved government relations and public support from high-level politicians.
- US tech giants, such as Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, have been making significant investments in AI technologies, intensifying the global AI race.
- However, US policymakers' use of tariffs has created policy uncertainty, resulting in a higher relative cost of capital for US tech firms and lower valuations compared to Chinese counterparts like Tencent.
- While US companies focus on pushing AI boundaries, Naspers and Prosus prioritize leveraging existing investments and developing local champions in emerging markets, also investing in Tencent and other tech ventures.
