R100 investment in Naspers and Tencent – huge difference in returns

Tencent significantly outperformed Naspers over the last eighteen years, which raises questions about Naspers’ management and capital allocation.

Naspers bought a 46.5% stake in Chinese internet company Tencent in 2001 for $32 million – an investment which made Naspers the multi-billion company it is today.

Naspers has been trying to duplicate its Tencent success through investments in numerous food delivery, fintech, classified, and other eCommerce businesses.

However, most of these investments did not meet shareholder expectations, raising concerns regarding Naspers’ ability to create value since the Tencent investment.

It is the main reason the Naspers share price traded at a big discount to its Tencent stake for years.

Ranmore portfolio manager Sean Peche has been particularly vocal on this point, saying the Naspers and Prosus management is actively destroying value.

Naspers’ portfolio, excluding Tencent, has not been performing well. Most investments are racking up huge losses, and there have been large write-offs.

Many Naspers’ Investors believe their shares would be worth a lot more today if Naspers had halted its investments post-Tencent.

To test this claim, Daily Investor tracked the performance of a R100 investment in Tencent when it was listed on the Hong Kong stock exchange in 2004.

We then compared the return from the R100 Tencent investment with R100 investment in Naspers over the same period.

The result shows the approximate value creation or destruction that Naspers has caused with its other investments relative to Tencent.

The R100 investment in Tencent in 2004 would be worth R48,545 today – an incredible 39.7% annualised return over eighteen years.

In comparison, the R100 investment in Naspers would be worth R10,641 today.

It is still an impressive annualised return of 28.7% for the holding period, although not near the returns generated from the Tencent investment.