When the golden 20 years of crazy growth of China's two Internet giants are coming to an end, Naspers and SoftBank are also at a loss. It has become their inevitable choice to reduce holdings of assets with low appreciation potential to pursue the next Tencent and Alibaba.

Image source @Visual China

Text | Good-looking Business, Author | Zhou Yiwei, Editor | Anxin

When the golden 20 years of crazy growth of China's two Internet giants are coming to an end, Naspers and SoftBank are also at a loss. It has become their inevitable choice to reduce holdings of assets with low appreciation potential and pursue the next Tencent and Alibaba . An announcement from

destroyed Tencent’s market value of HK$440 billion.

The "smashing" part is called Naspers.

html At noon on June 27, Tencent Holdings announced that its major shareholders Prosus (the company owns most of the equity by Naspers) and Naspers will start a long-term, open repurchase plan and will orderly raise repurchase funds by the on-site sale of Tencent Holdings held by Naspers Group.

Naspers sells Tencent shares every day is expected to account for a small part of Tencent's average daily trading volume. For example, if Naspers Group implements a repurchase plan in the past three months under the premise of complying with European regulatory restrictions, the average Tencent shares sold every day will not exceed 3%-5% of Tencent's average daily trading volume.

Simply put, Naspers and Prosus want to buy back their own shares, but they have no money in their hands and need to sell some of the Tencent shares they hold to raise funds. As soon as the announcement of

was released, Tencent opened in the afternoon and turned from a 4.16% increase to a 0.68% drop in one minute, and its market value instantly evaporated by about HK$200 billion. Tencent closed down more than 1.5% on the same day.

html From June 28 to 30, Tencent's stock price continued to open low and close low. As of the close of June 30, Tencent's market value has evaporated by more than HK$440 billion from its high before Naspers' announcement. How big and long will the subsequent continuous share reduction of Naspers have on Tencent’s stock price? It is not yet known.

Naspers said in the announcement that their launch of the stock buyback program is to increase the net asset value of Naspers and Prosus. Currently, the net asset value of the two companies is undervalued.

This repurchase plan is indefinitely, and the main source of funds for the repurchase plan is to reduce holdings in Tencent shares.

Naspers said that as long as their net asset value continues to run at a low level, they will continue to buy back; this means that their reduction in Tencent may also be indefinitely.

When the stock price is sluggish, listed companies usually use repurchase methods to boost stock prices and protect shareholder interests.

In recent years, SoftBank, the major shareholder of Alibaba , has also continued to repurchase shares. Following the launch of a record 2.5 trillion yen repurchase program in 2020, SoftBank once again announced a 1 trillion yen (about US$8.8 billion) stock repurchase program in November 2021.

will cash in on its Alibaba shares one after another, which is an important way for SoftBank to raise funds for stock repurchases, reduce liabilities, and obtain liquidity.

It is worth mentioning that for a long time, Naspers and SoftBank have been the largest shareholders of Tencent and Alibaba, two major Internet giants in China. They both bet on China's Internet industry at the beginning of this century, and have held Tencent and Alibaba for more than 20 years, and have also received thousands of times returns, which is regarded as a myth in the investment world.

When the golden 20 years of crazy growth of China's two Internet giants are coming to an end, Naspers and SoftBank are also at a loss.

plus global macroeconomic and geopolitical factors have caused the entire Internet and technology industry to enter a trough, and the asset value has shrunk significantly. It has become their inevitable choice to reduce holdings of assets with low appreciation potential.

Tencent and Alibaba became the major shareholders of "cash machines"

In 2001, Naspers invested US$32 million to acquire 46.5% of Tencent's equity. Even though Tencent's current market value has halved from its historical high, Naspers's stake in Tencent is still worth US$126.2 billion after two reductions. Naspers has held the investment of

for more than 20 years, with a total return of more than 4731 times.

000 and 2004, SoftBank Group successively invested US$20 million and US$60 million in Alibaba, and held a maximum of 34.4% of Alibaba's stock after multiple rounds of adjustments. It has been held for more than 20 years so far, with a total return of more than 2,000 times.

Today, the most stable major shareholders in Tencent and Alibaba's history are now time to pick fruits - Naspers and SoftBank are gradually reducing their holdings and leaving the market.The latest share reduction announcement of

is already Naspers’ third share reduction plan for Tencent.

Source: Hong Kong Stock Exchange

Naspers' earliest reduction in Tencent was in March 2018. At that time, it reduced its holdings of 189978,300 shares of Tencent shares at a price of HK$405 per share, accounting for about 2% of Tencent's shares, and cashed out a total of about US$10.6 billion. After

, Naspers also holds 31.17% of Tencent's shares after this reduction.

In 2019, Naspers split up and put its international Internet assets, including Tencent, Flipkart, Russia's Mail.ru, Ctrip , etc. into its holding company Prosus. Prosus was listed on the Amsterdam Stock Exchange in the Netherlands in September 2019. After the split of

, all Naspers' 31.17% stake in Tencent was taken over by Prosus.

In April 2021, Prosus reduced its holdings of 191,890,000 shares of Tencent shares through its subsidiary MIH TC Holdings Limited, which is approximately 2% of Tencent’s issued share capital, with a reduction of HK$595 per share. This time, the reduction was cashed out of US$14.6 billion.

According to Refinitiv data, it was the largest stock block transaction in the world as of the time. After this reduction, Prosus' shareholding in Tencent dropped to 28.86%.

In order to calm market sentiment and take care of Tencent's feelings, Naspers explained both share reductions. It said that the proceeds from the first share reduction are mainly used to expand business in different regions and future acquisitions and integration; the purpose of the second share reduction is to increase financial flexibility, including further foreign investment and supplementary funds. After each share reduction, it promised not to sell Tencent shares in the next three years.

It's a pity, it broke its promise. On June 27, 2022, it issued an announcement that it would reduce its holdings in Tencent again, and it would reduce its holdings indefinitely.

After all, it feels so good to have a large amount of funds delivered once you reduce your holdings. Through two shareholdings in Tencent, Naspers and Prosus made a total profit of approximately US$25 billion.

In addition, at the end of last year, Tencent reduced its holdings of JD and distributed the 460 million JD Class A common shares (total value of approximately HK$127.7 billion) they held to qualified shareholders.

through the equity allocation , and Prosus acquired approximately 4% of JD shares through its subsidiary MIH TC Holdings. On June 24, Naspers completed the sale of this part of JD shares, making a profit of US$3.67 billion.

Tencent's market value was close to one trillion US dollars at its highest market value, and it has repeatedly won the highest market value in China and the world's highest market value social media company.

For Naspers and Prosus, Tencent is like a security base and an ATM when there is a capital need. Even though Tencent's market value has shrunk by half from its highest point today, it is still a huge "gold mine" for its major shareholder Naspers.

In recent years, Alibaba has played a role as a security base to its major shareholder SoftBank. Whenever SoftBank encounters difficulties, it will almost certainly reduce its holdings in Alibaba and obtain "life-saving money".

In 2016, SoftBank reduced its holdings in Alibaba for the first time in its 16th year of holdings of Alibaba, and announced that it would sell at least US$7.9 billion worth of shares in order to reduce corporate liabilities and increase liquidity.

According to public information, some SoftBank made mistakes at that time, and its asset market value shrank significantly, and the company's total debt reached US$108.2 billion. After the first reduction of

, SoftBank's shareholding in Alibaba dropped from 32% to about 28%.

In June 2019, SoftBank once again reduced its holdings of Alibaba's American Depositary Stocks (ADS) and obtained a pre-tax profit of approximately 1.2 trillion yen (approximately US$11.12 billion).

As of the 2019 fiscal year ended March 31, 2020, the net loss attributable to the parent company of SoftBank Group was as high as 961.576 billion yen, one of the main reasons was the huge losses in investment of Vision Fund.

At the end of March 2020, SoftBank said it would cash out US$14 billion from Alibaba, the reduction of holdings is equivalent to 10% of its shares.

In the fiscal year 2021 (April 1, 2021 to March 31, 2022), SoftBank Group's net loss attributable to its parent company shareholders reached 1.7 trillion yen (approximately RMB 89.76 billion), setting its largest loss record in history.

Whether SoftBank will continue to reduce its holdings in Alibaba to obtain life-saving money has become the focus of market attention.

investment bank Furui mentioned in its research report that SoftBank needs US$40 billion to US$45 billion in cash in 2022 to provide funds for its private equity investment and repurchase, and it is possible to raise funds by selling assets rather than borrowing debts. Reducing its holdings in Alibaba is one of the options for financing.

Fruit estimates that SoftBank may have reduced its holdings of 20 million Alibaba shares in the fourth quarter of 2021.

Source: Changqiao Securities

According to S&P data, SoftBank currently holds 24.98% of Alibaba shares and is still the largest shareholder.

Naspers and SoftBank’s difficult moments

As Tencent’s largest shareholder in the past 20 years, Naspers is low-key and mysterious in the Chinese venture capital industry.

In fact, it plays an important role in the global Internet and technology fields, and many unicorns are behind them.

"South African Press" is the Chinese translation of Naspers. The company was founded in 1915 and is headquartered in Cape Town, South Africa. It initially mainly operates traditional printing media, and has 60 consumer newspapers, including the highest-selling newspaper Daily Sun.

After years of development, today's Naspers has become a huge investment empire. The businesses it invests in include: e-commerce (including classified information, food takeaway, payment and financial technology, education technology, e-commerce services, etc.), social and Internet platforms, media and other fields.

For example, in the field of takeaway delivery, Delivery Hero, iFood, and Swiggy are all projects invested by Naspers.

Delivery Hero is headquartered in Germany and is one of the global food delivery giants with a market value of 8.4 billion euros. Swiggy is India's largest food delivery platform, with media reports earlier this year saying its latest valuation is $10.7 billion. iFood is headquartered in Brazil and is currently the largest takeaway app in South America. Naspers holds 54.68% of Ifood through Prosus.

But in fiscal year 2022 (4.1-2022.3.31), Naspers encountered difficult times.

"The continuous global chaos and uncertainty have led to the continued turmoil of the economic environment." Naspers said straight to the point in his fiscal 2022 financial report.

Source: Naspers 2022 fiscal year financial report

In fiscal year 2022, in terms of economic interests, Naspers Group's revenue increased by 24% year-on-year to US$36.7 billion; but the growth rate was lower than 33.9% in the same period last year. In terms of operating profits of

, among the nine major business segments involved in Naspers, 6 of them experienced operating losses of varying degrees in fiscal year 2022, with a total loss of US$1.337 billion.

Among them, the food takeaway sector suffered the highest operating loss, reaching US$724 million, and the loss doubled year-on-year. The operating loss of the e-commerce business segment of the food takeaway reached US$1.12 billion.

In fiscal year 2022, although Naspers Group's operating profit fell by 10% year-on-year, it still achieved operating profit of US$5 billion. Behind this is mainly due to Tencent's contribution - up to US$6.273 billion.

Naspers mentioned in its financial report that although strong revenue growth has been achieved through its portfolio, like many other technology companies, the Naspers Group faces major macroeconomic and geopolitical headwinds, which has led to sharp fluctuations in the capital market in the second half of fiscal 2022.

Russia-Ukraine War, Inflation and the rising interest rates all bring about increased capital costs and uncertainty. In recent months, as risk appetite has dropped significantly, the valuations of companies in the global technology and Internet fields have declined significantly.

These factors have caused its net asset value to suffer for the first time in years, and Naspers believes that the discount on its total assets has "fallen to an unacceptable level."

As of June 29, Naspers' market value on Johannesburg Stock Exchange was only about US$30 billion, while its net asset value was US$70.7 billion, with a discount of more than 57%.

Naspers' stock price trend on the Johannesburg Exchange (currency: ZAR)

Prosus' market value is also significantly discounted compared to its net asset value. As of June 29, 2022, its net asset value was 157.7 billion euros. As of June 29, its total market value on Dutch Stock Exchange was only 883.4 euros, with a discount of nearly 44%.

Prosus' share price trend on the Amsterdam exchange (currency: EUR)

Naspers said that taking positive measures to reduce discounts is their priority.

Compared with Naspers' low-key and mysterious sense, Masayoshi Son and his SoftBank Group under their rule are well known in the Chinese venture capital industry.

Masayoshi Son was once known as the "Investment Emperor". He founded SoftBank in 1981 when he was 24 years old and sent it to the Tokyo Exchange for listing in 1994. After years of development, SoftBank Group has gradually become a comprehensive investment company , mainly committed to investments related to network and telecommunications.

html made its first pot of gold at the age of 118; investing in Yahoo, the highest return exceeded 100 times; investing in Alibaba, the highest return was 2,000 times. These are Son's achievements.

In 2017, he initiated the 100 billion Vision Fund, which bet on technology stocks , and exposed its "gambler" style, and eventually pulled him off the altar and dragged SoftBank Group into the abyss of losses.

In the fiscal year of 2019 (as of 2020.3.31), SoftBank Group suffered an operating loss of 1.35 trillion yen (approximately 87.5 billion yuan) and a net loss of 750 billion yen.

This is also the first fiscal year loss in SoftBank in more than a decade. Since then, it seems that Masayoshi Son and SoftBank Group's good luck have been exhausted, and SoftBank's financial performance has deteriorated.

021 fiscal year (as of 2022.3.31), SoftBank Group fell into an unprecedented bad situation: In that fiscal year, SoftBank Group's net loss attributable to its parent company shareholders reached 1.7 trillion yen (approximately RMB 89.76 billion).

This is the worst loss in SoftBank Group's 40-year history, and it is also the largest loss in history since its fund was established.

Vision Fund is the culprit for SoftBank Group's losses in fiscal 2021. During this period, Vision Fund's loss reached 2.64 trillion yen (approximately RMB 1393.4 billion). After the 2021 annual report was released, Masayoshi Son said that due to the COVID-19 conflict with Russia and Ukraine, the world has begun to enter a "chaotic mode". He emphasized that it is time for SoftBank to take defensive measures, not as radical as it was once.

When Naspers and SoftBank were betting on Micro, they boldly invested when they were young at Tencent and Alibaba, and were greedy and patient enough. They have also created the two investments with the longest holding and highest returns in the history of the Internet in China.

0 years later, everything has changed. Naspers and SoftBank themselves are in trouble, a bit like a mud Buddha crossing the river.

The 20 years of rapid growth have been difficult to reproduce

The past 20 years have been the 20 years of mutual success between Naspers, Tencent, SoftBank and Alibaba.

In Naspers Group, Tencent has long been the biggest contributor to revenue and profits and the pillar of assets; Alibaba has long accounted for half of SoftBank Group's total assets.

After 20 years of crazy growth, China's Internet has entered the stage of industrial Internet from consumer Internet, and supervision has also become more stringent in the rectification and management of Internet giants. The growth rate of the Internet industry has begun to slow down, and the slowdown rate is particularly obvious under the scale of Tencent and Alibaba.

021 Q4, Tencent achieved total revenue of 144.2 billion yuan, a year-on-year increase of 7.9%, setting the slowest revenue growth since Tencent went public in 2004.

In Q1 2022, Tencent's revenue growth further slowed down, with a year-on-year growth of only 0.1%, and growth almost stagnated. In terms of profitability of

, Tencent's net profit (Non-IFRS) has increased negatively year-on-year for three consecutive fiscal quarters since Q3 2021, which is something that Tencent has not seen in the past 10 years.

Alibaba also bid farewell to the high growth in the past.

In the third quarter of fiscal year 2022 (Natural Year 2021.Q4), Alibaba's revenue increased by 10% year-on-year, lower than market expectations. Among them, Taobao , Tmall 's customer management revenue increased by -1% year-on-year in the quarter, which is unprecedented in Alibaba's history.

In the fourth quarter of fiscal year 2022 (Natural Year 2022.Q1), Alibaba's revenue increased by 9% year-on-year, and the quarterly revenue growth rate dropped below 10% for the first time.

Naspers have always pursued high growth; Masayoshi Son is even called "Mr. Ten times", and they have an almost crazy desire for rapid growth. Tencent and Alibaba, which are now entering a stable period, are increasingly unable to match their tastes in terms of growth.

Prosus mentioned in its financial report that due to regulation and the impact of the new crown epidemic, Tencent's growth rate has slowed down and faced a difficult macroeconomic environment.

According to Nikkei Chinese, on June 24, Masayoshi Son said at SoftBank Group's regular shareholders' meeting, "Although Alibaba accounts for more than half of SoftBank Group's stock assets in the past period, Alibaba now accounts for about 20%. "

In fact, in the past fiscal year, both SoftBank and Naspers have made new investment layouts.

Take Naspers as an example. In fiscal year 2022, they invested a total of US$6.2 billion, part of which is used to increase their holdings of existing investments, and part of them are used to invest in areas with future value-added opportunities.

Naspers said that in order to find a course in a chaotic time, they decided to prioritize funds to support existing business development and more cautious asset and liability management, and maintain adequate cash flow .

and providing strong guarantee for all this is to sell Tencent.