Polarizing. Accusatory. Seditious. The unfiltered outbursts on Twitter have long been Donald Trump’s main channel of communication. The question for Twitter going forward is not only how to deal with Trump after he loses power – but also the actors who engage in disinformation.
Tech companies are often accused of negatively affecting democracy by facilitating the spread of falsehoods. Often the accusations come from media companies. Twitter’s new policy for how to handle the election is the latest example in the cat-and-mouse game that is taking place in the crossroads of technology, politics and the media. Should companies like Facebook and Twitter take responsibility for what is spread in their channels, or are they just a neutral communicator?
The line has so far been the latter, protected by Section 230. It means that companies are not legally responsible for what other people spread on their services, which is in contrast to how ordinary media companies are regulated.
In the media industry, it is often said that there is a difference between opinion material and news material. But this boundary is becoming increasingly subtle and hidden in an American media landscape where polarization often is rewarded. In that context, putting all the responsibility on Facebook and Twitter spreading extreme or false articles, without looking at how the articles themselves came about and were presented, is not seeing the whole picture.
Of course, there are many examples of pure misinformation produced and distributed with intent. This is of course deeply worrying and problematic. But there are significantly more articles from ordinary US media companies that end up in something of a gray area, and that get widely spread on social media.
Media researcher Johan Farkas spoke last year about how complicated it is to distinguish fake news from real news that is spread with the intention of not showing the full or the correct picture. The polarization that we see in the United States, which encompasses both the media and the general worldview, can therefore not only be traced to the production of hard-line opinion material, or the spread of it through social media. The two go hand in hand.
Take the tabloid New York Post that saw a Biden-critical article blocked by Twitter in mid-October. They are not alone in having become an actor, perhaps a little more involuntarily than many others.
There is a lot of talk about MSNBC and Fox News being on opposite sides of the political spectrum, but less so about companies like the Sinclair Broadcast Group, which has 190 local TV channels in the United States and reaches 40 percent of all Americans. Sinclair is owned by Trump supporter David D Smith who has on several occasions sent out scripts to news anchors who repeated Donald Trump’s talking points. In addition, there is OANN (One America News Network) which has spread several false conspiracy theories and is now part of the group of journalists who have access to the White House.
On the left side are smaller, but for many familiar, sites like Vox, Mother Jones and Slate. They are much less extreme, but at the same time very culturally influential and distinct in their positions.
How does one deal with this?
A possible solution is to treat tech companies in the same way as media companies. Then they would have to be responsible for what is published or spread on their sites.
This would not solve all the problems, but it would have moved us from the alleged neutral role when it comes to spreading. The tech companies could then help address the shortcomings that the media has today, instead of enhancing them. Tech companies can take a much more active role in coming up with solutions to these new, complex, problems.
They have long wanted to avoid being considered media companies, but it is no longer a reasonable defence to say that these are difficult issues to solve. It is difficult to put out a fire in a house that is soaked in gasoline – but the problem is not the igniting spark, but rather why the house was so flammable from the beginning. The problems we are seeing are consequences of decisions made by tech companies. You are responsible for these consequences – regardless of the original intention. For Twitter, it is now important to walk the fine line where you deal with these issues, but without ensuring that Section 230 gets thrown out.
What about Trump, then? In the aftermath of the election, he will continue to go to Twitter to question the results. As it stands today, Twitter will limit the visibility of his falsehoods. It took many years – and several political elections – for them to develop a policy where they did so. Anxiety about having Section 230 repealed probably played into their slow decision-making.
World leaders have a special position on Twitter. They often get to post falsehoods with a simple warning flag, while regular users need to delete them. But as Bloomberg describes, this policy is not something that applies to former world leaders.
Since there is no indication that Trump’s Twitter account will be silent on the day he leaves the White House, he will probably soon have to adapt to the same rules as the rest of us.
Unintentionally funny translations and poorly rounded prices. But those who base their conclusions on linguistic details have not only misunderstood what type of creature that has landed among the Swedish e-commerce players. They have also underestimated Amazon.
“Men’s luggage compartment” instead of boxer shorts. “Waist lamp” instead of panties. Prices stated to the exact penny, and also, not necessarily lower prices than their competitors.
The e-commerce giant Amazon was widely ridiculed on social media after the launch of its Swedish site this week. Nor were the expert comments gracious. “Not exciting, hardly serious,” said one. “Calling this a threat to Swedish e-commerce is an insult to all talented Swedish e-commerce companies,” said another.
To see this as a long-term sustainable analysis of Amazon in Sweden is to deceive oneself. To begin with, it is too early to even analyze the launch. One can also question whether this should even be considered a launch. A litmus test for how the company should proceed, is probably a better description.
It can continue like this for a few weeks or months. In the long run, it does not matter. If Amazon wants to win the battle – then they will win the battle. The arguments for why are many, but a lot is about Prime which is the company’s engine.
The membership program’s main offering is fast and free shipping on many products. In addition, a wide range of other services are included – for instance the video service Prime Video, the music service Amazon Music Unlimited and discounts in the grocery store Whole Foods, which is located in North America and the United Kingdom.
Prime costs 119 dollars per year, equivalent to about 1000 Swedish kronor (SEK). In January, the company announced that it had over 150 million members. Thus, Prime alone has a turnover – without selling a single product – of around 150 billion SEK per year. A study from 2018 also showed that Prime members spent more than twice as much on the site compared to others.
Secondly, we have the deliveries. Amazon uses a variety of suppliers, but in recent years it has taken on more and more of this on its own (equivalent to 58 percent, about 2.3 billion packages in 2019, according to Bank of America). This already makes them the fourth largest logistics company in the United States after USPS, Fedex, and UPS.
In Sweden, the company cooperates with Postnord. But as their American counterparts have discovered, this loyalty runs risk of eroding as Amazon’s ambitions increase.
Thirdly, we have the investments. Amazon, like many of the tech companies, can make huge central investments that benefit all of their markets.
Investments in, for example, smart speakers such as Alexa are difficult to justify solely for the Swedish market, as it is too small to bear the costs. But adding Swedish as a language to a service that has already been developed is a relatively small cost. This also makes it difficult to compete against.
Amazon is financing the investments through the stock market, which now accepts that the company’s growth is more important than their potential profits.
The company’s CEO, Jeff Bezos, reportedly once said that “your margin is my opportunity“. Thus, there is no rush to make any profits, as long as they can increase their turnover.
Amazon likes to enter a market and undercut their competitors’ prices – and they can afford to do so for a very long time. This means that the margins of competitors quickly disappear. But that does not mean that Amazon is always the cheapest. Like many modern e-commerce players, it adjust its prices all the time. Thus, it is difficult to look at the Swedish website and draw many conclusions about where the prices will ultimately end up.
Not everyone has owners with the same attitude to capital as Amazon’s shareholders. But they have many reasons to continue to believe in Jeff Bezos.
In 2019, the company had sales of over 280 billion dollars, more than three times as much as in 2014. In addition, the share price has risen around 75 percent – in the last year alone. Being patient with the profits has paid off.
Fourth, Amazon Web Services (AWS) is embedded in the stock, which is the not-so-well-hidden card up its sleeve. The cloud services have grown massively and are hugely profitable. Today, AWS is an obvious part of the web’s infrastructure and many Swedish e-commerce companies use AWS in some way.
The shortcomings of Amazon’s Swedish website are obvious. They have a lot of work to catch up on, but Sweden should not overestimate itself in an international context. The company has succeeded in much more difficult markets than this.
In the long run, a sloppy start does not matter. Instead, take a closer look when they have launched Prime, and perhaps their own logistics in Sweden. Only then have they really launched.
It is no insult to say that Amazon is a threat. It is the new reality.
He that seeks – he shall find, with the help of Google. That is why the company is getting sued in what has been called a historic case in the United States. What is striking, however, is everything that the lawsuit does not focus on – that which will constitute the real conflict between politics and technology.
When you search directly in the browser on your computer or mobile phone, it is probably Google that delivers your search results. This simple mechanism is worth billions of dollars. And it is the one that forms the basis of the new lawsuit that the US Department of Justice has filed. It claims that Google is acting in an anti-competitive manner, specifically with the billion-dollar agreements with companies like Apple and Samsung in order to be the users’ preset search engine.
Google responded unsympathetically – and compared itself to breakfast cereals in the grocery store. The cereal company pays the store for a better placement on the shelf, and Google claims it is exactly the same here. Additionally, you can change the settings of your browser to use another search service. Or for that matter, just enter the URL of a competitor instead.
The lawsuit is being referred to as historic. On the other hand, there are many indications that it is only a prelude of what is to come.
Google has, as should be noted, been in political turmoil in the past for precisely these types of anti-competitive offenses. In 2017, the European Commission fined the company $2.7 billion for abusing its dominant position in, among other things, its own shopping service.
As is well known, there is no major consensus in American politics, and has not been for many years. However, the question of whether tech companies have gained too much influence and power is one of the few that both Republicans and Democrats have pursued. Leading politicians from both sides have expressed their support for splitting up companies like Google and Facebook.
Thoughts have therefore been put forward, including from the two senators and former presidential candidates Elizabeth Warren and Ted Cruz, about blocking new major corporate acquisitions to avoid monopoly-like situations. Or to just divide the companies that already exist to create more competition in the market. In such a scenario, Facebook could have to sell Instagram, or Google could have to get rid of YouTube.
Because there are so many angles of attack on tech companies from a political perspective, it is surprising that the lawsuit is so limited in its scope.
Here are three major areas that the lawsuit could have focused on instead of just focusing on Google’s alleged monopoly in the search engine market:
Firstly, the consolidation of power that has taken place through acquisitions. Google has acquired more than 200 companies since 2001, including YouTube, which is itself one of the world’s largest search companies, albeit in video. Has Google simply become too big, and through it too powerful to compete with?
Another area is the integration from different parts of Google, such as data from, for example, Google Maps and Android, which affects your search results and ads. Has it been clear enough for consumers that the data is used in that way?
A third area is the presentation of the company’s own search results, which was what the European Commission fined Google for. How does Google display its own services and search results, compared to how other companies are presented?
All three points have been the subject of criticism, but are not mentioned at all now. It probably has to do with timing before the election, rather than the importance that the Justice Department gives it.
These questions may well be added to future court cases. And that is precisely why things run a risk of becoming chaotic in the future, as is often the case when politics has to catch up with technology.
As the issue of tech companies’ power and influence has come up on the political agenda, their presence in Washington has also increased. A review by the Washington Post showed that their lobbying efforts over the past ten years can be summed up to about half a billion dollars, with a clear increase in recent years. This is a trend break from a Silicon Valley that largely stayed away from traditional politics for many years.
Most startups in Silicon Valley started entirely without political ambitions. But in connection with the enormous success they have had – especially in the consumer market – it is difficult not to become a power factor, whether you want to or not. Many companies have therefore been forced to deal with issues that they never intended to be a part of.
Both Facebook and Twitter recently took action to reduce the spread of a controversial New York Post article. It can be seen as a way to avoid criticism to spread potential inaccuracies, but even that decision was criticized.
Silicon Valley has had a long honeymoon where enormous values have been built by engaging in activities that have been a little too complex for politicians to have to react. That time is now over. But it remains to be seen how much of the power will eventually be taken back from California to Washington again.
There is no doubt that the tech giants have the means to fight back. As the New York Times writes, Google has nearly $18 billion in cash to contend with and to get the best lawyers. The budget for the Justice Department’s anti-trust division? $167 million.
I’m happy to announce that starting today I will be a contributing tech analyst to Svenska Dagbladet, a Swedish daily newspaper. Their business section, Näringsliv, is going through a transformation where they focus more on companies that you use, rather than own or work for. This is a change that I wanted to contribute to. Business journalism is ripe for a new take.
I have previously been a contributing analyst to SVT, Swedish National Television, and this feels like a logical progression from there. My board positions and advisory work remain, as before.
You get known for what you have done; rarely for what you would like to do. This is a problem because it captures people in an incorrect assumption: that they would like to do – and would be best at – continuing to do exactly what they did before. This is often wrong.
Expertise and capability is in the eye of the beholder, so this is a tricky thing to adjust. But many years ago I listened to a talk from a CTO at a startup that said something like “I try to book a talk about a certain type of tech that I like, and then about six months later I often get contacted about a project involving that very thing“. It makes sense. If no one knows what you are interested in, they are also unlikely to contact you about it. But since no one is going to talks at the moment, I decided to just write these things down instead.
The result is this list of areas and concepts that I’m interested in. It is brief and to the point, and my idea is that I’ll update it when new things come up. I’m also thinking that it can be a place to refer to when people contact me and would like to do something together. Finding common ground in terms of interests is a good start.
What are you interested in? Take a look at my list, and please get in touch if there’s an overlap somewhere.
Letting everyone have the same experience sounds good and fair. In reality, this way of designing excludes people that are different, or have different circumstances. Allowing experiences to be asymmetric can be a way of sharing without having to be identical.
When I worked in media research many years ago, a common consumer question was “What kind of TV do you watch?“. The answer was almost always “documentaries“.
You could then place an ethnographer in their house to see what they actually watch. The real answer was almost always “The Bachelor” (or something equivalent). The people you are asking aren’t necessarily lying, but they have a different image of themselves than what reality might show. It probably feels like they watch a lot of documentaries. It’s just that compared to reality-TV, they don’t.
The old, and slightly obvious, lesson here is that there’s a huge difference between what people say they do, and what they actually end up doing.
Why people say one thing and do another This is familiar in many different areas. For example, rarely have I heard of focus groups with parents where the idea of having a parental dashboard hasn’t come up. Parents want to be able to track and follow their kids’ progress in educational apps. That way they can see how to help or encourage their kids as needed. There’s only one problem with this: parents never actually use these dashboards.
While it is understandable that parents want to know what their kids are doing, it is a little sad that this has to be done through indirect surveillance. Why is it assumed that the only way you could participate in kids’ media choices is from afar?
A part of the explanation falls into the documentary answer above. Good intentions don’t always come through. Parents are often stressed and overworked. There’s just no time to check dashboards with graphs that show math progress. There’s no time to play together.
But there’s more than that. A more interesting explanation, I think. The implied assumption is that kids apps are boring for adults. Another explanation is that the whole point of kids apps is that parents are doing something else while the kids are playing with them. This is fair to some degree, but does it have to be this way? In a word: no. You can design products for this purpose, but it requires some intentional design decisions.
Equal doesn’t always mean fair When you think of most card games, the basic premise is that all players adhere to the same rules. They play against each other with the same deck. It is an equal starting ground. But all games and experiences are not designed like this.
If you look at golf, they have a handicap system to balance differences in skill level. Good players can play with bad players and still have a somewhat fair match.
If you look at role playing, the Game Master acts as the arbiter and sets the scene of the game. The other participants follow their lead. They are all playing together, but they have very different experiences of the same game. Same thing in something like World of Warcraft. Your role determines your experience, but you are still sharing it with others.
Most kids apps are designed like card games. There’s one way of playing them, and not only would the adults be better at accomplishing the tasks, they would likely find them pretty tedious too. This is unsurprising since kids and adults don’t always like doing the same things. But as the examples above show, you can design experiences that are genuinely fun for both parties. They just need to be different experiences housed in the same context.
How to make experiences work for everyone Here are a few variables to consider:
Time. Kids often have way more time to spend on games than adults do. Sometimes more patience too. For instance, you could weight games so that adults spent 5 minutes for every 60 minutes played by the kid. Both parties are playing, together, but not the same amount of time.
Context. You don’t necessarily have to be playing the same game to want to share an experience of something. It could be helping a kid to edit a Minecraft video and then posting it on YouTube. The actual creation of the video itself would be made entirely by the kid, but the adult could participate in the broader context. It creates something to talk about – something to have in common.
Skill & Role. What is actually being done on the respective screen can also be largely different. Imagine a mystery game where you need to solve a number of logical clues to work out how to succeed. The adult may need to solve a sudoku in order for the next clue to appear. Which is something that they might be doing anyway, but in a different context.
Designed for team work. World of Warcraft is a good example of a game where it is hard to succeed entirely alone. You need the help of others to get to where you want to go. Even a game like Little Big Planet had elements of this – you needed both Sackboys to get through some levels. You are playing together, because it is designed to be played together.
Asynchronous. The time element of when you are playing can also be a deterring factor. Adults have less time off, and some of it is often after their kids have gone to bed. All of this makes for difficulties in playing games together in a synchronous manner. The answer is to design something that doesn’t require the activities to happen at the same time. It could be something turn-based (like Scrabble), or managed through roles (as per above) where parents could play their part at night and then it would be ready for the kids when they wake up in the morning. Something to talk about over breakfast!
As I’ve stated before, there’s so much more to be done in the kids space. I’m not saying that it is easy, or that the market has noticeably changed for the better. It hasn’t. All of those challenges still remain. But this further emphasizes the importance of looking outside of what has already been done and starting to create the next generation of kids apps.
No more parental dashboards. Let’s have real, inclusive, asymmetric experiences that the whole family can share and enjoy – together.
In the spring of 2012, I moved to San Francisco to start the US office for Toca Boca. My wife, Miriam, followed shortly thereafter and we sent ten boxes of stuff with UPS. We didn’t know how long we would stay and took one year at a time.
A few weeks ago, I moved back to Sweden. To Malmö, next to Copenhagen, more specifically. A little more than eight years after I left. This time with a freight container full of stuff, and two American daughters. Quite the difference.
I’m going to continue my work as an advisor and independent board member in the same way as before. In fact, due to who I work with regularly, the time zone will be a considerable improvement.
When I had worked in my advisory practice for a year, I summarized what I had actually been doing. It’s been a little over two years in total now, and I think it is time for a brief update.
Here’s a selection of the things I’ve been working with:
I advised an educational WeChat app in China with positioning and marketing.
I presented about Voice tech for a corporate VC and their portfolio companies in Sweden.
I developed an App Store marketing strategy for a London-based EdTech company.
I did a long row of expert network consulting gigs with VCs, family offices, and PE companies from across the world.
I started working with a family messaging service from Canada.
I advised a UK law firm on a specific case.
I did product strategy work for an EdTech app based in Taiwan.
I wrote a report for a Swedish company about the driving forces behind why people pay for online services, and what happens to their expectations once they start doing it.
I helped an Indian EdTech company with overall quality assurance in product development processes.
I made a few minor investments, and started formally advising a few others.
In my new hometown of Malmö I look forward to contributing with my experiences and getting to know the local community. I look forward to freeing up more time for reading and writing. I look forward to having meetings in more convenient parts of the day. I think it is going to be great.
If you have a project in mind or want some help with something – wherever in the world you may be – please feel free to reach out.
Rovio is a company I have followed and admired for many years. They were pioneers in building the first global family brand through mobile. In later years, they have gone through a big transformation to the company you can see today. I’m proud and grateful to have the opportunity to help them on this continued journey.
“The investment strategy at the time was to find a replacement revenue source for its traditional print media business – which it forecast would decline in the advent of digital media”
That’s a quote from an article describing Naspers, a South African media company, in the 1980s. Koos Bekker – now the Chairman – had suggested that there was potential for a new type of pay TV in South Africa, similar to HBO.
The narrative is immediately familiar. A media company tries to branch out to digital media in order to make up for the shortfall in print. But this is not that kind of story. Instead of cautiously investing a little on the side, Naspers transformed themselves from a legacy media company to one of the most interesting and prominent internet investors in the world.
What makes the story about Naspers even more interesting is that their transformation wasn’t solely driven by clarity of vision. It was – and is – driven by necessity after having hit the investment equivalent of winning the Powerball – their investment in Tencent in 2001. But having an unbelievably successful investment as a listed company is a double edged sword. Naspers’ journey has been both complicated and has led to some extraordinary secondary effects.
Let me explain what I mean. But first, a little background.
Naspers was founded in South Africa 1915 as a newspaper and magazine publisher. They later added book publishing, and in the 1980s also pay-TV through M-Net. Their original name was De Nasionale Pers Beperkt, and as the name implies they were nationalists – Afrikaner nationalists more specifically.
In the 1990s, the company changed its name to Naspers and listed itself on the Johannesburg Stock Exchange. By then, the TV operations contained a spinout from M-Net, now called Multichoice – a subsaharan provider of pay-TV and sports programming. But still, all in all, very much a traditional media company with newspapers, books, magazines and television.
This is where it starts to get interesting. Naspers had started to diversify, which among other things meant some investing in China and other foreign markets. However, the crash in 2001 forced the company to make a lot of write-offs – among the Chinese activities in particular. They lost hundreds of millions of dollars in total, and about $100 million in China alone. But the CEO at the time – Koos Bekker – still managed to leave the market with one, valuable asset.
As they were leaving Beijing, Bekker was approached by two young men who had started an internet operation called Tencent, which was already signing up users at a remarkable pace. Against the decision to withdraw, Bekker took a gamble on 49% (sic*) of their company.
This was the turning point – when the South African media company started to become a global internet company.
Tencent President, Martin Lau, chairman & CEO Pony Ma, and CFO John Lo. Photo: Asia Times.
The Tencent investment
Bekker bought 46.5% of Tencent for just $32 million in 2001. 18 years later, in 2019, their stake – after IPO dilution – had grown to $133 billion. An almost unbelievable return, and likely one of the best investments of all time. In 2018 they sold 2% of their Tencent stake, and netted $9.8 billion.
But while the shareholders were happy with the return of their Chinese investment, their trust in what else Naspers was doing seemed to erode. In 2012, 80% of Naspers stock price was based on their stake in Tencent and another 10% on their holding in Mail.ru. That meant that all other activity in the company was valued at only 10% of the total stock price. It also meant that the dependency on Tencent was immense. And with it, a perceived high volatility. Investors were asking themselves: what will happen to Naspers, if Tencent falls?
Being lucky with an individual investment can be a blessing and a curse. In this case, the outlier investment in Tencent forced the management team to start differentiating even further, and much more aggressively. Naspers started to invest a lot into other internet companies – predominantly in emerging markets. Remember – they had already done this once and lost hundreds of millions of dollars about ten years earlier. So this move took some courage. But this time it was a defensive move rather than an offensive one. If the media assets that they owned weren’t going to rebalance the stock volatility – something else had to it. And the bet was that one or several of these new internet companies might do the trick.
The investment era begins
From around 2007 and still to this day, there has been an immense activity in investment and M&A from the South African giant.
Here’s a selection of the e-commerce transactions that they’ve been part of:
These are big deals. There aren’t that many companies in the world that are involved at these levels. And what’s more – note that this was just five of their transactions, in one single category (e-commerce). The complete list is too long to list, but Crunchbase has a longer version for those of you that are especially curious. And below is a little bonus reading about each respective deal mentioned above.
– Is this an internet investment company, like IAC?
– Is this a holding vehicle for Tencent shares, like Altaba was to Alibaba?
The answer to all these questions is basically “yes“. But that’s not very helpful in terms of analysis of course. Naspers acknowledged this.
On top of this confusion, Naspers also had – and still has – a structural disadvantage in that they primarily trade on the JSE – the Johannesburg Stock Exchange. This is troublesome for several reasons, but partly because the South African currency, the Rand, is among the most volatile currencies in the world. The currency risk alone is enough to put many investors off. Also, Naspers size compared to the JSE at large was a becoming an issue. And then you have the complexity to analyze and understand the company overall too.
The solution to this was to restructure the business entirely. It was done in 2019, and this is where Prosus first enters the terminology. The process started by spinning out Multichoice, the entire TV- and cable business, to it’s own listing on the JSE. This made the actual media part of this former media company very small. In fact, it represented just 1.7% of revenues in 2019.
Next was to separate Takealot – probably because it is a South African marketplace which makes sense to have listed together with Naspers in their home market.
And then finally – the creation of Prosus, a new company which listed on Euronext Amsterdam in September of 2019. Prosus consists of all of their internet investments, including the 31.1% stake in Tencent. Naspers holds around 73% of Prosus shares, while 27% are floated.
I made a graphic to explain what the relationship looks like, as of February 19, 2020:
As you can see, the Tencent stake represents more than 100% of EBITDA. It’s fair to say that the dependency on this one holding is still very substantial.
Naspers strategy in 2020
Naspers today focuses on the following eight areas:
Let’s look at each of them briefly:
Classifieds – relatively well consolidated and an established business. Now profitable as a whole too. My prediction that they will acquire Adevinta still stands.
E-Commerce – largely a local South African play, and not an area for further expansion given that they have divested Flipkart and Souq.
Food Delivery – has similar market dynamics to classifieds in that it is also a marketplace, but a more underdeveloped one. This one will be costly and require more consolidation before it shows a profit.
Media – a shrinking business that is going to be difficult to divest due to the lack of buyers. I wouldn’t be surprised if these assets were placed in an independent trust instead of run through the operations.
Payments & Fintech – largely a supplemental business to the marketplaces. Having access to massive consumer groups is a great way to launch new payments brands, as well as the additional margin on each purchase.
Social & Internet Platforms – this consists of the holdings in Tencent and Mail.ru.
Travel – a merger created an ownership stake in a listed Indian travel company called MakeMyTrip. No other activity in the space.
Ventures – seems largely opportunistic and a way of identifying new growth areas in the market.
Cursed by success
If the main point of Naspers’ additional investments and acquisition was to diversify from Tencent, how has that worked out? Well, it turns out it is hard to catch up with success. This is how the Tencent stock has performed since it’s IPO:
Tencent’s share price since IPO ($0700.HK)
As of February 17, 2020, Tencent’s market cap is $510.358 billion. The 31.1% ownership that Prosus owns should subsequently be worth ≈ $158.7 billion. However, the total market cap of Prosus is currently at $126.7 billion. The value of the Tencent stake still eclipses the value of the entire company.
This puts Naspers in a familiar position. On the one hand, the performance of Tencent has been incredibly successful – more so then anyone could have imagine. On the other hand, all their other investments and acquisitions still haven’t convinced the stock market that they are worth while. It must be slightly ungrateful to be one of the largest internet investors in the world, and still see your entire portfolio be considered a rounding error in overall valuation of the company. The volatility of the stock remains, and the dependency on Tencent too.
So, why doesn’t the market value Naspers and Prosus higher then? It’s always hard to explain why the market does what it does. In general, investment companies often trade at less than their net asset value, but Naspers discount has been unusually high. Some have raised concerns about the tax liability that selling the Tencent stock could induce, and others have referenced the political instability – including currency risk – that Naspers has in South Africa. These factors could play in, but the market is often not as rational as it is made out to be.
All in all, the fundamental question is: can Naspers do it again? If they have anything in their current portfolio that has close to the development that their one lucky break in China has had, then the tables could quickly turn and the market could start looking at them differently.
Naspers has spent the past 20 years trying to diversify themselves. But no one knows the double edged sword of success like they do. The very success that put them where they are today, is the very thing that is holding them back. The world’s most interesting – and underrated – internet investor in the world, that almost no one has heard of.
Disclaimer: This should not be considered investment advice, and at time of writing I do not hold any stock positions in Naspers, Prosus, or Tencent.
As a celebration of Joan Ganz Cooney’s first report on kids and media (re-issued here), I wrote a post for their blog. It is about finding a spark of inspiration in times where things might seem a little bleak. A bit like the kids app market today.
Here’s my attempt to remember the big picture and the great opportunities that are ahead:
At times like this, it is important to remember the big picture. We have a generation of kids across the globe growing up with access to smartphones and devices. The collective knowledge of the world is at their fingertips. Communication between friends, family, classmates is free, simple, and immediate. Entertainment is endless and available anytime, anywhere. Families have the infrastructure in place, the time to spend, and the interest in finding new, great ways to help their kids develop, learn, and have fun.
