Naspers results: Classifieds about to break even
26 Jun 2017
It’s been a long six years*. But, the end is in sight: OLX Group, the classifieds business of Naspers, is close to breaking even. Take LetGo out of the numbers, and OLX Group may even turn its first trading profit in the current financial year (FY2017/18 to end-March 2018).
Excluding LetGo, the trading loss of OLX Group dropped to “only” $78 million U.S. in FY2016/17 from $192 million U.S. in FY2015/16, and $286 million the year before that. If this trend stays intact, OLX Group should be breaking even any month now.
From our point of view, this is the most exciting news to emerge from the earnings report for FY2016/17 released late last Friday.
With LetGo included, profitability may elude OLX Group a bit longer, since Naspers had the following to say about LetGo: “Since the merger of LetGo and Wallapop in the U.S. in May 2016, user engagement has been lively … results to date are encouraging and investment in the U.S. market and elsewhere will continue for several years” (our accentuation – editor).
Included in the OLX Group are brands such as OLX (in about 42 countries), Avito, LetGo, Dubizzle, Stradia, Storia, Property24, Fixly and Tradus. About 1,200 people work at OLX Group in seven offices around the world.
OLX Group made big strides forward in FY2016/17. In FY2015/16 revenue growth still disappointed (24 percent to $266 million U.S.), but in FY2016/17 we saw the long-awaited “jump”, when revenue grew 60 percent to $426 million U.S. from $266 million U.S. in FY2015/16.
Avito had a lot to do with this – it was this outperformer’s first full year in the numbers of OLX Group. But, other businesses also contributed: Ten of the roughly 50 business units (our guess) in OLX Group reported trading profits in FY2016/17 – up from eight in FY2015/16.
According to Naspers, OLX sites are now leading classifieds in 35 countries of the roughly 42 it operates in – up from 21. Of those 35 sites, 12 charged for services by financial year-end – up from ten. The average EBITDA margin of the 12 sites which are charging stood at a healthy 45 percent in FY2016/17.
The 12 charging OLX sites pushed the revenue/internet user up 50 percent to $1.10 in FY2016/17 from 70 U.S. cents in FY2015/16.
A number of countries in Europe got special mentions in the Naspers report for accelerating their growth, namely Poland, Ukraine, Romania, and Portugal. In Turkey, LetGo received praise for “closing the gap to Sahibinden” as measured by mobile active users per month (MAU).
There is a lot more detail on the performance of OLX Group and selected business units in the slide presentation (here). Look at slides 14 to 22.
Interesting trends also revealed themselves for classifieds in the bigger picture at Naspers, concerning the importance of classifieds for the company. For long, the classifieds business struggled to increase its share of total e-commerce revenue above 7 percent. At the end of FY2016/17, this is how Naspers revenue broke down between segments (or divisions – editor):
The segment e-commerce contributed 20 percent ($2.9 billion U.S.) to total Naspers revenue of $14.6 billion U.S., the segment listed investments (Tencent and Mail.ru) contributed 53 percent, the segment video entertainment 23 percent, and the segment media (mostly Media24 in South Africa) contributed 4 percent.
Classifieds fall under e-commerce. Of the $2.9 billion U.S. generated by e-commerce, OLX Group contributed 15 percent ($426 million U.S.). And marketplaces contributed another 11 percent. So, the businesses the AIM Group follows closely together contributed 26 percent of all e-commerce revenue.
But, there’s more. Late in FY2016/17, Tencent increased its exposure to classifieds in China (here). The revenue earned from that part of the world is not split out (yet) in the Naspers and/or Tencent reports. With the revenue of these classifieds included for a full year, the classifieds and marketplaces share in total Naspers revenue may even climb to over 30 percent of total revenue.
Naspers combines the segments e-commerce and listed investments in its report and calls the combined segment “the internet segment”. In FY2016/17 the internet segment’s share of total revenue rose to 73 percent ($10.6 billion U.S.) from 67 percent in FY2015/16.
Another number which points to a growing importance of classifieds for Naspers, is the breakdown of development spend between segments. In FY2016/17 no less than 46 percent of the development budget of $1 billion U.S. went to classifieds. This money was largely spent by OLX Group on mobile (LetGo and the mobile offering).
So – exciting times for classifieds at Naspers.
Later today (Monday), Naspers management will present the FY2016/17 results to analysts. We’ll listen in, and add new insights to this brief.
A parting note: Last week Albert Saporta, owner of a Swiss investment firm, said Tencent is so dominant in the Naspers portfolio of businesses, it should be spun off to unlock full value (here). Shortly afterward, the FY2016/17 report was released and showed Tencent became even more important in the year to end-March 2017, when its share of total Naspers revenue climbed to 51 percent ($7.5 billion U.S.) from 44 percent in the previous financial year.
And, if there is anything in recent rumors that Naspers is negotiating the sale of Multichoice Africa (generator of a lot of revenue) to MTN (here), Tencent’s revenue share in the total cake may get even bigger – before it starts to sink. (Of course, we assume classifieds/marketplaces will eventually help Naspers reduce this unhealthy reliance on Tencent – editor.)
*OLX was founded in 2006. In 2010, Naspers acquired a majority stake in OLX. Koos Bekker, then CEO of Naspers, told analysts around that time that he expected it to take on average around six years of heavy investment in the OLX brand, before Naspers will be able to start charging for OLX services.