Unlocking Naspers’ potential: Lessons from Steve Jobs’ turnaround at Apple – Ted Black

In the wake of recent leadership changes, Naspers faces a crucial juncture in its corporate journey. Can the company learn from the late Steve Jobs’ transformative strategies? Jobs, when he returned as Apple’s CEO in 1997, defied skeptics by focusing on innovation rather than cost-cutting. He pruned Apple’s product lines, designed beautiful, sought-after products, and invested in cash generation. The result was a resounding success, with Apple overtaking industry giants. Drawing parallels with Naspers’ current situation, this article highlights the importance of asset productivity and cash generation. It also suggests that Naspers could take a page from Jobs’ playbook, concentrating on differentiation, innovation, and seizing new market opportunities. With Naspers seeking its “next big thing,” a shift in strategy may be the crux of the journey ahead, much like Jobs’ pivotal decisions at Apple.

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A Question: Is Naspers a “Casino”?

By Ted Black*

Given the recent change at the top, could Naspers learn something from the late Steve Jobs? He certainly didn’t believe in “casino capitalism”. That’s when you have a strategy based on hope you win the jackpot. In this case, to find another Tencent. 

When Jobs became Apple’s CEO for the second time in September 1997, it was nearly bankrupt. Nine months later in June 1998, with the turnaround taking shape, Bill Gates said, “What I can’t figure out is why he’s even trying. He knows he can’t win.” You can understand why. 

Microsoft’s market cap was $250 billion and Apple’s $4 billion. It would have been less than half that had Jobs not persuaded Gates to invest $150 million. He argued that keeping Apple afloat would help Microsoft in its fight with the Justice Department. 

At the start of the turnaround in 1997 he said the cure isn’t cost-cutting. It’s to innovate its way out of its current difficulty. So what did he do first? 

Unlike the “professional” corporate manager, he focused on one thing all successful entrepreneurs do – it’s to generate cash. In the end he did cut costs but designed a different business – not a bloodied, demoralised one, the usual effect of cost pogroms. 

He got to work like a gardener and cut back to Apple’s core. He pruned a range of handheld and portable products down to one laptop. He cut fifteen desktop models back to one. He dug out all side-line products like printers; slashed inventory by 80%; outsourced almost all manufacturing to Taiwan. 

He cut development engineers because he already had the best operating system in Next – the company he started and brought with him. He cut software development and distributors. He cut five of six national retailers but opened a store to sell direct to consumers. His bold moves re-positioned Apple. It was concentrated and focused for growth through the design of beautiful products that people queued overnight for.

As Bill Gates already knew, a brilliantly designed business, even run in a mediocre way, will knock the socks off a mediocre business design run brilliantly. With one, bold strategic move and IBM’s unwitting help, Gates cut everyone off at the pass with his Windows operating system and positioned Microsoft atop the PC “Mountain”. Then along came Jobs … again. 

He re-designed Apple brilliantly, and ran it brilliantly. By the time he died in 2011, Apple’s market cap was bigger than Microsoft and Intel combined. It’s now the most valuable company in the world with a market cap of $2,7 trillion and an operating Cash Return on Assets Managed (Cash ROAM) of 40%.

In 1998, after the turnaround began – a ROAM improvement from minus 36.7% to plus 13.3% – Jobs was asked what his strategy was to compete with Windows and Intel who dominated the PC market. Apple had only 4% of it.

He smiled and said he’d wait for the next big thing. The cash war chest he was filling meant he could. High asset productivity generates cash. This buys you time to think, develop options and decide on the critical best next steps. 

He set out to make a “ding in the universe” as he put it. He leapfrogged what customers, not competitors, were thinking and created new markets. He made Apple uniquely different – the prime strategic move – and turned it into a low-risk, high-return business. 

Today, it’s a fortress circled by a moat of high ROAM, little debt and 50% of its total assets in cash and marketable securities – not intangible “goodwill”, a result of paying too much for growth, or “scale”, through acquisitions.

So, now look at the link between Cash ROAM and Market Cap in Naspers and Tencent (if Apple were to be included it would be off the chart).

The effect of Tencent on Naspers is clear. With asset productivity declining, financial engineering and share buybacks over the last few years have been a futile attempt to reduce any value discount. 

Here’s why. Look at sales next.

A graph showing the growth of sales

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The biggest contribution to segmental sales growth is from Tencent – effectively the internet sector.  Classifieds, Payments, Food Delivery, Edtech and Etail form Ecommerce.

 Naspers stated strategy is to operate platforms. To take “strategic bets”  and be the “most desired partner” in high growth markets for “successful” entrepreneurs. Sounds good but there seem few, if any, of them. 

The next chart showing trading profit trends confirms that.

A graph showing the growth of the trading profit

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The firm’s goal is a positive EBITDA in another year or so, but goals aren’t strategy. You can wade through their typical, turgid annual report full of “Business Speak’ (BS) that probably scores at best 20 or so on the Flesch readability scale and learn little (the King James Bible scores 80 which is pulp fiction level). Look at listed companies in the various sectors, none make money, or generate cash. 

Delivery Hero hasn’t done either for years and nor do any of the others in Ecommerce. The food delivery sector is tough. Last year, Just Eat’s  Goodwill “write off” was $4,4 billion. 

“Start-ups” are a form of gambling. They consume cash voraciously. Most fail. Yet, the successful gambler, or entrepreneur, soon uses some “House Money” and eventually only that. Typical corporate start-ups take far, far longer to get there. In contrast, look at Tencent from 2003 – two years after Naspers invested in it.

A graph showing the value of money

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Cumulative cash profit after tax is “House Money”. “Own Money” is Equity minus the cumulative cashprofit. By 2008 Tencent was using only “House Money”. That’s successful entrepreneurs at work. 

So, what to do next?

What about getting the brains out of bed for a few days at Babylonstoren? A wonderful project created by Karen Roos Bekker. They could learn something about design, gardening and farming methods that apply to management. To prepare, they might read Richard Rumelt’s latest book “The Crux”. 

Rumelt, the strategists’ strategist, takes the title from mountain and rock climbing. The crux is the hardest move to make on a climb to the top. The book’s message is to focus your thinking on the most difficult problem you face that you can, and must, do something about. 

Even better, go for the best. Get Rumelt to facilitate – they can afford him. He finds in his work with executive teams it’s not that they don’t know what their problems are or ways of tackling them, but that they’re hung up on something that stops them doing what they must do. He helps them identify the barrier between the way they think about things and taking decisive action.

And what must that action be? All bewildered investors – direct or indirect ones – keep wondering but still have their eyes fixed firmly on Tencent – the only china egg in the basket.

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