Ecommerce Triumph for 2022/2023: Prosus N.V. Rockets Toward Profitability, Unleashing a $25 Billion Windfall for Shareholders

  • Strong Financial Performance: Prosus N.V. reports a 13% revenue growth, reaching US$2.6 billion, with an 85% increase in core earnings.
  • Ecommerce Profitability Acceleration: The company targets consolidated Ecommerce profitability by 2H24, ahead of the previous goal of 1H25.
  • Strategic Structural Changes: Prosus successfully removes crossholding, reduces net share count by 16%, and generates US$25 billion for shareholders.
By Lethabo Ntsoane

Prosus N.V., the Netherlands-based multinational consumer internet group, has unveiled robust interim financial results for the six months ending September 30, 2023. The company’s performance highlights substantial growth in revenue, a remarkable reduction in trading losses, and a strategic acceleration in achieving consolidated Ecommerce profitability.

Financial Snapshot:

Revenue and Earnings per Share

In the first half of the fiscal year 2024 (1H24), Prosus recorded consolidated revenue from continuing operations of US$2.556 billion, marking a 13% (16% in local currency) increase compared to the same period in the previous year. Earnings per ordinary share reached 137 US cents, reflecting a substantial improvement from the previous year’s 91 US cents.

Ecommerce Consolidated Trading and Core Headline Earnings

The Ecommerce segment demonstrated resilience, with a trading loss reduction of US$220 million, narrowing to US$36 million in 1H24. Core headline earnings surged to US$2.0 billion, showcasing an impressive 85% growth. This increase was primarily attributed to enhanced profitability in Ecommerce consolidated businesses, equity-accounted investments, notably Tencent, and heightened net interest income.

Share Repurchase Programme

Prosus’s ongoing open-ended share repurchase programme has been a driving force, reducing the company’s net share count by 16% and generating a substantial US$25 billion for shareholders. This initiative, launched in June 2022, is funded by the daily sale of a small number of Tencent shares.

Structural Changes and Portfolio Value

September 2023 marked the successful removal of the crossholding, simplifying the company’s structure and aligning with the commitment made in June 2023. The open-ended share repurchase programme, coupled with the elimination of the crossholding, has added significant value for shareholders, creating around US$25 billion.

Business Segment Performance:

Food Delivery Continues to Impress

Prosus’s Food Delivery segment exhibited robust performance, with revenue growing ahead of industry peers. Notably, profitability showed meaningful improvement, reinforcing the segment’s position as a key contributor to Prosus’s overall success.

iFood Sustains Momentum

iFood, a major player in the Food Delivery segment, maintained momentum in its core restaurant food-delivery businesses. Additionally, a measured approach to grocery growth extensions has contributed to comparable profitability margins, aligning with global peers.

Classifieds and Ecommerce Growth

Prosus’s Classifieds business in OLX Europe delivered growth and enhanced profitability, primarily driven by improved operational metrics and strong performance in the pay-and-ship offering. The company’s Ecommerce businesses have not only maintained topline growth but have also showcased improving profitability in 1H24.

Payments and Fintech Record Growth

The Payments and Fintech segment recorded meaningful growth in the core payment service provider (PSP) business. The positive performance was attributed to India payments, Turkey’s Iyzico, and India credit. The consolidated trading loss narrowed, showcasing improved profitability in Global Payments Organizations (GPO), Iyzico, and savings from new initiatives in PayU India.

Challenges in Edtech

Despite overall positive results, the Edtech sector faced challenges, particularly in Stack Overflow’s monetisation initiatives. The company recorded a further impairment in 1H24. Nevertheless, Stack Overflow has taken significant action to improve its operating profile and introduce generative AI capabilities. GoodHabitz, another Edtech component, is benefiting from investment in product enhancements and a more measured international rollout programme.

Future Outlook:

Accelerated Ecommerce Profitability Target

After years of investment and growth, Prosus’s businesses have reached scale and are demonstrating improving profitability. The company now targets consolidated Ecommerce profitability for 2H24, ahead of the previous goal of 1H25. The strategic approach involves building on the strong momentum of recent halves and sustaining profitability growth for each subsequent period, aiming for good margins.

Share Repurchase Programme Continues

The open-ended share repurchase programme, funded by the daily sale of Tencent shares, has proven successful. As of September 30, 2023, the combined holding company discount of Naspers and Prosus reduced by around 17 percentage points. Over the same period, Prosus repurchased 210,413,966 of its ordinary shares N, with a total value of US$13.9 billion, at a significant discount to their Net Asset Value (NAV), leading to a 7% accretion in NAV per share.

Prosus’s Role in Tencent’s Success

Prosus’s strategic investments, particularly its stake in Tencent, continue to play a pivotal role in the company’s financial performance. Tencent’s increased dividend of US$758 million in 1H24 significantly contributed to Prosus’s strong cash flow.

Financial Review and Impairment Challenges:

Impairment Challenges Impact Operating Losses

Amid challenging macroeconomic conditions and industry valuation declines, Prosus recognized impairment losses on goodwill of US$440 million in 1H24. The impairment losses included Stack Overflow (US$340 million) and the OLX Autos business classified as held for sale (US$100 million). Further impairment losses on equity-accounted investments related to Skillsoft (US$42 million) and unlisted equity-accounted associates in the Prosus Ventures portfolio (US$133 million) were also noted.

Core Headline Earnings and Net Debt Position

Core headline earnings from continuing operations were US$2.0 billion, reflecting an increase of 85% (118%). The company maintains a strong balance sheet with central cash of US$15.1 billion, including short-term cash investments, resulting in a net debt position of US$18 million.

Governance and Structural Changes:

Simplified Structure and Share Repurchase Commitment

Prosus’s commitment to simplifying its structure by removing the crossholding was fulfilled in September 2023, receiving overwhelming shareholder support. This move ensures the company can continue its open-ended share repurchase programme, providing additional value to shareholders.

Share Repurchase Funding and Naspers’s Involvement

Naspers funds its open-ended share repurchase programme with regular sales of Prosus shares. By September 30, 2023, Naspers had sold 67,715,575 Prosus ordinary shares N to the value of US$4.4 billion and bought back 26,631,055 Naspers N ordinary shares to the value of US$4.3 billion.

Conclusion:

Prosus N.V.’s strong interim results underscore the company’s commitment to delivering value to shareholders, strategic investments, and sustained profitability. The accelerated timeline for achieving consolidated Ecommerce profitability and the success of the share repurchase programme signal positive momentum for the company’s future. Despite facing challenges in certain segments, Prosus remains poised for continued growth, maintaining its position as a key player in the global consumer internet landscape. Investors and stakeholders eagerly await further developments as Prosus continues to navigate the evolving digital landscape.

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Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted: Email: lethabo@rateweb.co.za Twitter: @NtsoaneLethabo