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Tencent’s Top Shareholder Prosus Embraces Tech’s New Normal

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The chill in technology markets has spread to Prosus, the problematic Amsterdam-listed investment company that sometimes appears insulated from wider trends by its $94 billion stake in Chinese internet giant Tencent.

Prosus said Wednesday that its half-year consolidated trading losses more than doubled to $449 million, as it continued to invest in its roughly $30 billion portfolio of e-commerce ventures, which are engaged in cash-hungry businesses such as food delivery and fintech. It also signaled that this would be the peak period for cash burn as it adapts to the rising cost of capital by cutting costs and shifting its operating focus toward profitability. The company thinks its e-commerce investments need another two years to break even.

Paradoxically, accelerating some investments this year to achieve greater scale has been part of a longer-term plan to refocus on profitability, said Chief Executive

Bob van Dijk.

He likened the effort to changing the direction of a speeding car: To avoid an accident, he needed to get the car in the right road position and pump the brakes before pulling on the wheel. 

“This is the point where we turn the corner,” he said in an interview.

If this seems a subtle line of argument in a brutal tech-stock rout, it is because Prosus doesn’t face the immediate cash pressures many companies do in a difficult funding environment. Its vast Tencent stake is a bit like permanent capital on its balance sheet and supplied it with $565 million in dividends in the period to cover losses elsewhere.

With $15.8 billion of gross cash on its balance sheet following some well-timed bond issues, Prosus can even think about making contrarian acquisitions. It agreed in August to pay up to 1.8 billion euros, equivalent to about $1.9 billion, to buy out its partner in iFood, Brazil’s answer to

DoorDash


DASH 0.95%

and Uber Eats. The seller, struggling food-delivery company

Just Eat Takeaway.com,


TKWY -0.85%

had rejected a €2.3 billion offer only last year.

Where Prosus has taken heat from investors is over the gaping discount to book value at which its stock trades. It finally came up with a workable solution to the problem in June by starting share buybacks funded by a steady flow of Tencent stock sales. The amounts involved are sizable, amounting to $13 billion a year at the current rate, and have already narrowed the discount to about 37%, from 53% before the buybacks were announced. This trend could continue, rewarding investors who buy Prosus while selling Tencent short.

If the company also addresses its overly complex structure—Prosus is majority-owned by listed South African holding company

Naspers,


NPSNY 2.10%

creating a double discount—there also could be variations on this discount-closing trade. Mr. van Dijk said he is working on that.

The move to gradually shrink the Tencent stake is another reason, alongside the rising cost of capital and the deteriorating consumer environment, why Prosus needs to stop bleeding cash in its e-commerce businesses sooner rather than later. It is early days, but the likely endgame for this well-run but awkwardly-constructed technology company finally is becoming a bit clearer.

Write to Stephen Wilmot at [email protected]

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