Naspers and Prosus: The Best Investment Ever Made, and the Problem It Created

The most successful venture investment in history created the most persistent discount in corporate finance. This story covers the newspaper origins, the Tencent bet, the Prosus listing, the discount problem, the buyback and the operating businesses — part of the South Africa Company Stories hub.

Where did Naspers come from?

From Afrikaans newspaper publishing. Founded in 1915 as Nasionale Pers, it published newspapers and books serving the Afrikaans-speaking community and was closely associated with the political movement that later implemented apartheid.

That history is part of the company’s record. Its publications supported the National Party and the apartheid project for decades, and the group has acknowledged this past, including an apology from its chairman in 2015.

Its transformation from newspaper publisher to technology investor began with pay television through M-Net and MultiChoice in the 1980s and 1990s, which established both a technology orientation and the cash flows that funded later investments.

How did the Tencent investment happen?

Through a search for internet assets in emerging markets around 2001, when the dot-com collapse had made technology investment deeply unfashionable and Chinese internet companies were tiny and unproven.

Naspers acquired roughly a third of Tencent, then a messaging service with no clear revenue model, for about thirty-two million dollars from investors who wanted out. The purchase price is now less than a rounding error against the value created.

The decision that mattered as much as the purchase was holding. Over two decades Naspers largely retained the stake through repeated opportunities to sell, allowing compounding that no amount of subsequent investment skill could have replicated.

Why did the discount appear?

Because Naspers became too large for its home market. At its peak it represented a very large share of the JSE’s total value, forcing South African index funds and institutions to hold more than their mandates or risk appetite permitted, which created persistent selling pressure.

Investors also questioned whether the group’s operating businesses added value or consumed it, and applied a holding company discount reflecting tax, governance and the risk that management would reinvest Tencent proceeds unwisely.

The result was that buying Naspers shares was a cheaper way to own Tencent than buying Tencent directly, which is an unstable and value-destroying situation for any holding company.

What did the Prosus listing achieve?

Partial relief. Listing the international assets in Amsterdam in 2019 moved the Tencent exposure to a market where index constraints were less binding and gave European investors direct access.

It reduced Naspers’ weight on the JSE and broadened the shareholder base, though the discount persisted at both levels, and a subsequent cross-holding structure between Naspers and Prosus added complexity that investors disliked.

The group later simplified that structure and initiated a large open-ended share buyback funded by selling small portions of the Tencent stake — a mechanism that repurchases discounted shares using assets valued at full price, mathematically increasing per-share value.

What are the operating businesses?

Classifieds through OLX, food delivery through iFood and Delivery Hero stakes, payments and fintech through PayU and other holdings, edtech and various e-commerce investments across emerging markets.

iFood in Brazil has been the standout, becoming the dominant food delivery platform in Latin America’s largest market and a genuinely valuable business in its own right.

The broader portfolio has been criticized for consuming capital without producing another Tencent, and management has responded by narrowing focus toward profitability rather than growth-at-any-cost, closing or selling underperforming assets.

What is the Tencent relationship now?

Reduced but still dominant. Prosus has sold portions of the stake to fund buybacks, and Chinese regulatory intervention in the technology sector reduced Tencent’s valuation substantially from its peak, shrinking the asset in absolute terms.

The relationship has always been passive: Naspers held a large economic interest without operational involvement, which is why the investment’s success reflects Tencent’s management rather than Naspers’.

Chinese policy risk is now a central consideration. Regulatory action on gaming, fintech and platform companies demonstrated that the value of the stake depends on decisions made in Beijing rather than on Tencent’s commercial performance alone.

What is the South African connection now?

Largely historical and structural. Naspers remains listed in Johannesburg and retains MultiChoice-related history, but the operating businesses and the value are international, and the group’s leadership and centre of gravity are in Amsterdam.

For South Africa the company represents both a remarkable achievement — a domestic group made one of the best investments in history — and a familiar pattern, in which value created migrates to larger markets.

The MultiChoice business was separately listed in 2019 and has since been subject to an acquisition approach from Canal+, continuing the separation of the group’s South African media origins from its international technology identity, as the MultiChoice story describes.

What is the lesson?

That extraordinary investment success creates its own strategic problem. Naspers made the best venture investment ever recorded and spent twenty years unable to convince the market that the rest of the company was worth anything.

The second lesson concerns holding and selling. The value came from not selling for two decades, which required conviction against repeated pressure — and the eventual difficulty came from the same concentration that produced the return.

The third is about the limits of replication. Management’s attempts to find another Tencent through a broad portfolio of emerging market internet businesses have produced some successes and considerable capital consumption, which suggests that the original investment was substantially fortunate as well as insightful.

How does the buyback mechanism create value?

By selling a small portion of Tencent at full market value and using the proceeds to repurchase Prosus and Naspers shares trading at a large discount to the assets they represent. Each rand of Tencent sold buys more than a rand of underlying value back.

The arithmetic is straightforward and the effect compounds: every repurchase increases the Tencent exposure per remaining share, which mechanically raises net asset value per share regardless of what Tencent’s price does.

The programme has been open-ended and substantial, and it addresses the discount more effectively than any strategic communication, because it converts the discount from a complaint into a source of value for continuing shareholders.

What went wrong with the cross-holding structure?

The 2021 arrangement in which Prosus acquired a stake in Naspers created a circular ownership structure that investors found confusing, that complicated index treatment and that appeared designed to entrench management rather than to solve the discount.

It was widely criticized, the discount did not close, and the structure was subsequently unwound in favour of the simpler buyback approach — an unusually direct example of a market rejecting financial engineering in favour of capital return.

The lesson is that structural solutions to valuation problems generally fail when the underlying issue is investor scepticism about capital allocation. Complexity reads as evasion.

What is the operating portfolio strategy now?

Fewer businesses, held for longer, managed for profitability rather than for growth at any cost. The group has narrowed toward classifieds, food delivery, payments and selected e-commerce, closing or selling assets that could not demonstrate a path to profit.

iFood is the clearest success, holding a dominant position in Brazilian food delivery with genuine profitability, which is the proof point management needs that the portfolio can produce standalone value.

The strategic test is whether the group can be judged on these businesses rather than on Tencent, which requires them to grow large enough to matter against an asset that still dominates the balance sheet.

What is the record of the group’s other investments?

Mixed, with several substantial write-offs alongside genuine successes. The group invested heavily in food delivery, education technology, e-commerce and payments across emerging markets, and many of those businesses proved harder to make profitable than expected.

iFood and certain classifieds and payments assets have created real value; others consumed capital during a period when growth investing rewarded scale over profitability and then repriced sharply when it stopped.

What is the governance criticism?

That the group’s structures — historically including high-voting shares and the cross-holding arrangement — insulated management from shareholder accountability while the discount persisted and capital was deployed into businesses that underperformed.

The buyback programme and structural simplification represent a substantial response, and the discount has narrowed, which suggests the criticism was addressing a real cause rather than a symptom.

What is the group’s relationship with South Africa now?

A listing, a history and a diminishing operational presence. The value, the management centre and the businesses are international, while the South African connection is corporate structure and the legacy of the media assets that funded everything.

For the JSE the company remains among the largest constituents, which means South African index investors hold substantial exposure to Chinese technology and European-listed internet assets through what is formally a domestic share.

That situation captures the wider pattern in South African capital markets: the largest listed companies are increasingly proxies for offshore assets rather than for domestic economic activity.

What is the lesson for concentrated shareholdings?

That a position which grows to dominate a portfolio eventually forces a decision: sell down and reinvest, distribute it to shareholders, or accept a permanent holding company discount. Doing nothing is a choice with a measurable cost.

Naspers held for two decades, which was correct while Tencent compounded, and the discount appeared once the position became too large for the local market to absorb. Recognizing that transition point earlier would have saved considerable value.

How should the group be valued?

As a sum of parts: the Tencent stake at market value, the operating businesses on their own metrics, less a discount for holding company costs and tax, and adjusted for the buyback’s continuing effect on shares outstanding.

The analytical difficulty is that the operating businesses are at varying stages of maturity and profitability, so their aggregate value depends heavily on assumptions about which will scale and which will be closed.

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