Twenty years ago, you could buy Naspers shares for R12 each. A decade later they had risen to R222. Today you’ll need R2,550 for that same Naspers share. Very few stocks achieve this “ten bagger” status. Doing so twice in successive decades is unheard of. But the Naspers party is now well and truly over.
The share price’s amazing performance is rooted in an inspired decision in 2001 to pay $32m for 50% of a then fledgling Hong Kong business called Tencent. That little company mushroomed into China’s leading internet business – as well as the world’s biggest video game publisher.
But Tencent’s financial results for the three months to end September, released last night, tell us the glory days have ended. Revenue increased 13% yoy, the lowest rise since it went public in 2004 and the sixth successive quarter of falling growth. Its net profit was up just 2.5% on the same quarter of 2020. Net margins are down four percentage points to 23%. Chairman Martin Lau warns that this is the new normal.
Reason is a double blow from Beijing. Chinese authorities are using an anti-trust stick to attack company profits. And applying a moral argument to force gaming companies to cut young people’s play time to three hours a week. For two decades, Tencent enjoyed the best of all worlds. Ditto Naspers. But that wheel has turned. Sharply.
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