TenCent numbers boost Naspers

The Naspers share price is doing fantastically well, trading at all time highs just short of R500. Most of this is attributable to the great performance of Tencent following very good half year results released last week. Let's take a look at these results.


In case you forgot, Tencent is like the amalgamated version of Facebook, Whatsapp, Zynga, Ebay and Amazon for China with over 750 million subscribers. The company has historically traded at high valuations yet has constantly managed to post very strong growth over an exceedingly higher base. Even during a slowing Chinese economy the company managed to post a 32% rise in second quarter profits thanks to strong advertising revenues.


In fact advertising revenues grew 80% as the company embraced new advertising technologies on their mobile platforms. This is good news for the company who have made most of their money from gaming and e-commerce. Yet advertising was never a big driver. But if you have so many subscribers then why not? And it makes you realize that there must be other ways to monetize so many subscribers. This is why it is so difficult to value social networks. The options are endless and you'll find that many money making ideas have not even been thought up yet.


Gaming also did very well with a 53% growth in revenues. The subscription based role playing gaming is very popular in China and they are expanding this internationally into the likes of South Korea. Here is what management had to say about their overall performance.

"Despite maturing Internet user growth and decelerating economic growth, we sustained healthy year-on-year improvements in our revenues, earnings, and cash flow during the second quarter of 2012. Our IVAS business continued to expand year-on-year as our existing and new games added users, and as we generated more revenue from applications on our open platforms. Our MVAS business experienced modest growth during the quarter, thanks primarily to our bundled SMS packages and mobile games. Our online advertising business achieved a significant year-on-year growth rate, due to new platform contributions and market share gains in key advertiser categories. Revenue of our e-Commerce transactions business increased sequentially, benefiting from growth in GMV of principal transactions and commission fees derived from transactions on our marketplace."


Revenues for the first half of the year came in at 20.1 billion yuan ($3.2bn). Margins are huge with operating profits of $1.2bn. When you look at their businesses you can see why margins are so good. Very little input is required once the platforms are created and you have 750 million people to grasp. The company trades on a valuation of 34 which has been the norm. We are not deterred by this.


We continue to see Naspers who own 34.26% of the company as a great entry into Tencent. We think that this surge in the share price is justified and it still has room to grow. Plus you are getting a whole lot of good assets along with the potential of the next Tencent.