Facebook’s market capitalisation is outrageous and, together with Nasdaq, is what’s to blame for insane Internet company valuations. This is the view of Naspers’ internet head Antonie Roux who said these “crazy” valuations are forcing the company to close its acquisitions’ cheque book. By MANDY DE WAAL.
When South Africa’s media gorilla announced on 14 June it was expecting to lift headline earnings by 10% to 20%, the market was less than kind. This despite the fact that a week earlier Goldman Sachs said the shares were undervalued and it rated Naspers a “buy”.
Naspers’ success in pay television has proved to be a cash cow for smart investments in Internet companies, mostly in developing economies like Brazil, India and China. The crown jewel is, of course, Tencent which for its first quarter this year reported profits up by 61%, and revenues close on $1 billion. With competition growing in the Chinese market, a cash-rich Tencent said it would look to expand internationally.
Speaking to Daily Maverick ahead of the company’s results, Roux was predictably tight-lipped about where Naspers would see its best growth. “I will tell you where our best growth is and our competitors will read it, so let’s not go there,” says Roux, who in April was appointed CEO of MIH Holdings, so he oversees Internet and pay-TV operations for Naspers. “We’re extremely happy with Tencent, Mail.Ru in Russia and Allegro in Poland. All I’ll say is it’s easy to do the calculations and to see we’re spending a lot of money in Latin America.”
Naspers hasn’t been taking out its cheque book as often as it did in early years because of the Internet bubble and Roux’s view that “prices are crazy right now”. Roux, who’s been with Naspers for more than 32 years, said he smells 1999 all over again. “We must have looked at 600 businesses and walked through the front door of another 200, but we haven’t been buying because the prices are unrealistic. There is a bubble out there, it is just crazy.”
Roux said most of the start ups are radically over-valued and he blames Nasdaq and Facebook. “Part of the problem is the market capitalisation of Facebook, which is unrealistic. The rumour is that last year Facebook turned over $1.4 billion. How do you place a market capitalisation on a company that makes $1.4 billion north of $60 billion?”
“Facebook is big, it will get bigger and it has infiltrated our lives in many ways, but the market capitalisation is unrealistic.” Roux said another culprit that’s caused this bubble is the Nasdaq. “I said this in 2000 and I’ll say it again. I think Nasdaq is guilty. Nasdaq allows PowerPoint presentations for IPOs. Nasdaq is just a company that wants to make money, so they don’t give a damn who they allow to put forward an IPO and who fails. I think it is fundamentally wrong.
“Here I respect the Hong Kong stock exchange that says you should be allowed an IPO only if you have three years’ of audited profits. I think that all bourses in the world should be allowed to have that,” Roux said.
The last guilty party on Roux’s “bubble list” is the recession and what it’s meant for big fund managers. “The recession during the last few years has contributed to this. There is a lot of money, so where are the pension funds and other funds going to put their money? They have to put it somewhere and they are scared of this, and scared of that, so they put it into the unrealistic valuations of Groupons, Zyngas and Facebooks,” Roux said.
While the likes of Facebook and Groupon are the poster boys of the Internet, Naspers’ global profile is extremely understated, which in a way speaks to the closely knit, fairly media shy group who run the company. “Naspers is lead by a small group of people like Cobus (Stofberg), Mark Sorour, Charles (Searle), me, Basil (Sgourdos) who is the CFO of MIH, Steve Pacek and Koos (Bekker). We’re really a team, everyone brings a unique angle to the party and I don’t think there’s anyone here who feels they work for anyone,” he said.
Roux tells the story of this team meeting the heads of executive search specialists Heidrick & Struggles. “We briefed them for two or three hours because we really wanted them to understand our culture. Fiona (Vickers) who heads their UK business said it would be impossible to find anyone that would fit within Naspers’ top management because it is such a closely knit team.”
Despite this, Naspers has made promising appointments which included Stephen Newton who was the boss of Google SA, but now oversees the company’s e-commerce operations locally. Then there’s Oliver Rippel, who was appointed two years ago as CEO of e-commerce for Africa and the Middle East.
“Oliver was based in SA, but is relocating to Singapore. He oversees such a huge geographical area it makes sense for him to be in Singapore, where we have quite a substantial office.” Roux said Rippel has an enormous amount of e-commerce experience because “he worked at eBay in Germany, which was an enormous success, and he worked at eBay in China, which was an enormous failure. To be successful in life you need both big failures and great successes.”
Roux laughs. He laughs a lot during our interview, particularly when the questioning strays from focusing on Naspers and moves closer to who he is, his leadership and his history at Naspers. Speaking about success and failure, Roux said he was in India where someone said to him: “Only if there is a large problem is there a large opportunity.” Roux laughs: “Isn’t that wonderful. That is now my auto-signature at the bottom of my emails from my iPad, because I think it is so valid.”
Rippel aside, Roux has three other managers that report to him. The Latin American region, which includes Mexico and South America, is overseen by Hein Brandt. “Hein has been there for four years. Europe is predominantly central and Eastern Europe, but we do have some investments in Western Europe. That is Hein Pretorius, who has been with the group for a very long time and who started Kalahari.net. (Pretorius was a regular contributor to Maverick magazine – Ed) In China we have only one investment which is Tencent. Charles Searle is our M&A guy in Hong Kong and he manages the relationship with Tencent. He’s been with us for a long time.”
Roux started working at Naspers while studying engineering at the Cape Technikon. “I have been working here for 32 years, can you believe I am now 53? When I paged through an internal magazine during those early days and there were these guys that got their 20- or 30-year long service awards, I thought of them as losers. How can you work for the same company for 20 or 30 years, it is terrible? But here I sit 32 years later. I think the remarkable thing is that if you look at it I have worked in 10 different companies because each time has offered me such new and different opportunities in very different places,” says Roux.
I ask Roux about the challenges he’s faced over the years and after a pause he starts laughing again. “No man. Now this is sounding like an interview about Antonie, and this isn’t about Antonie, it is about Naspers.”
Instead I ask Roux why engineers are so successful in the Internet sector. He laughs and says: “There was a Fortune magazine article a year or so ago that Koos cut out and sent to everyone. Fortune did an analysis over the last 10 or 20 years of the successes and failures in Silicon Valley. In the very last paragraph they said what was interesting was that most of the companies that had failed had been run by accountants and most that were successful had engineers as CEOs.” Roux laughs again and adds, “So, of course, Koos latched onto that and would tell you that if he had his life over again he would study engineering.”
Roux started at Naspers on 1 December 1979 when the company consisted of a couple of newspapers and one or two more magazines. “We had our offices opposite the Supreme Court in Cape Town and I was a junior technician who came to work in an overall.” Roux’s obviously no longer in overalls and Naspers has matured into a formidable global player on the back of some astute investments. It’s the kind of strategy that local media companies would do well to reverse-engineer and try to understand, if they want to be well positioned for future growth. DM
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