Naspers up stake in Avito

Naspers announced on Friday that they had stepped up their investment in Avito. What is that? As per the release, it explains that the business is the leading online classifieds business in Russia, and that they (Naspers) are increasing their stake from 17.4 percent to a controlling stake of 67.9 percent. The price seems pretty hefty, it is not clear what the purchase price is, how do you interpret this: "a US$1.2bn transaction to become the largest shareholder in Avito"?

Annual revenues of 76.5 million Dollars (a whopping increase of 76 percent from 2013 to 2014) mean that the business is growing quickly, and has strong EBIDTA margins of over 50 percent. From my inter-webs reading it seems indeed that the 50.5 percent that Naspers bought was for 1.2 billion Dollars. Or 2.4 billion Dollars for the whole business. Or 31 times last years revenues. Even if we presume that the business maintains their growth rates of last year into this year, Naspers paid roughly 18 times annual revenue of the current year for an online Russian classifieds business.

For comparisons sake in a listed environment, eBay trades on a nearly 2 times price to sales ratio, Facebook trades on 23 times on the same metrics. Google slash Alphabet on 7.3 times. I guess that if the new business bought outstrips their competitors and morphs into something really big, this would have proven to be a market move (if they can maintain margins). What is less pleasing is that this is taking place in Russia, not the most favourite investment destination currently. Those politicians are crazy. The quantum of the transaction represents just less than 2 percent of the entire market cap of Naspers.