Prosus: FY2022 H1 Earnings – Key Points to Know!
- Rupam Deb
- Nov 30, 2021
- 5 min read
Prosus – FY2022 H1 Earnings Results
Prosus released its earnings results for FY2022 H1 (ending September 2021) on 22 November 2021. Total revenue (on an economic interest basis) grew 31%, driven by high Ecommerce revenue growth (+60%) and a relatively lower growth for its share of Tencent’s revenue (+24%). Trading profit grew by only 8% due to heavy reinvestments. Meanwhile, Prosus’ diverse Ecommerce portfolio has grown significantly over the years, approaching $50 billion (compared to $13 billion five years ago), which translates to a 22% IRR over the last decade, with recent investments achieving even higher IRRs.
Here are our key points from the earnings results and call! Note that the dollar amounts are in US Dollars (unless specified otherwise), and for percentages in brackets following another set of percentages, the percentages in brackets represent y/y growth in local currency, excluding M&A.
Prosus’ group revenue, measured on an economic interest basis (i.e. including a proportionate consolidation of the contribution from associates and joint ventures), grew 31% (29%) to $16.6 billion.
This was driven by Ecommerce revenues, which rose 60% (53%) to $4.2 billion, representing an acceleration of 23 percentage points (ppt) (2 ppt). Prosus’s economic-interest share in Tencent’s revenue grew 24% (23%) to $12.3 billion, an impressive performance given the size of its base.
As a refresher, Prosus has two main segments. The first segment is the Ecommerce segment, comprising Classifieds (up 100+% y/y), Food delivery (up 100+%), Payments and fintech (up 42%), Etail (up 7%), Edtech (up 100+%), and others (down 1%). The second segment is the social and Internet platforms segment, comprising Tencent (up 24%) and VK (previously Mail.ru) (up 25%).
Despite high revenue growth, group trading profit grew only 8% (8%) to $2.9 billion, reflecting the continued heavy investment to fund growth by expanding its existing platforms, and building deeper relations with customers and partners.
Tencent, as usual, contributed the majority of the trading profit, at $3.4 billion, a 14% growth over the $3.0 billion a year ago, despite a ~2% lower stake in Tencent after its recent sales.
The Ecommerce segment became more unprofitable, from a loss of $214 million a year ago to a loss of $372 million in FY2022 H1. Within this segment, only the Classified business is profitable, earning $108 million (up from $29 million a year ago). Food delivery business is the most unprofitable (in terms of absolute amounts), incurring $312 million of losses in FY2022 H1, a 65% increase over the $189 million of losses a year ago.
Core headline earnings (which mainly exclude share based compensation (SBC) expenses and other non-operating items) were $2.3 billion, up 4% (2%), driven by a bigger contribution from Tencent, despite its sale of a ~2% holding in Tencent. This was partially offset by investments to grow its ecommerce ecosystems and platforms.
In FY2022 H1, Prosus focused on maintaining growth and customer engagement, while leveraging increased scale to develop opportunities in adjacent products and services. It is building ecosystems with multiple customer touchpoints to improve both their experience and retention. It aligns technology and data with key customer needs such as convenience and ease of use. Given that long-term engagement with customers requires end-to-end capabilities, it invested more in building products across its Ecommerce portfolio during that period.
Prosus’ diverse Ecommerce portfolio has grown significantly in value (along with its revenue growth) over the years.
Five years ago, that portfolio, excluding Tencent, was valued by analysts at around $13 billion. Recently that valuation was approaching $50 billion. This substantial value appreciation translates to a 22% internal rate of return (IRR) on the $22 billion invested over the last decade.
This portfolio includes companies like Delivery Hero, VK/Mail.ru, Trip.com (MakeMyTrip and ibibo) and, most recently, Remitly, Skillsoft, Sinch, SimilarWeb and Udemy.
In FY2022 H1, Prosus had a very active season of M&A. It invested $5.2 billion in new acquisitions to expand its ecosystems, mainly in Edtech, Food Delivery and payments. It also committed $4.7 billion for the acquisition of BillDesk. These amounts are much higher than its historical average run rate for M&A of about $3 billion per year.
For the IRRs of its most recent investments, primarily in Food delivery and Edtech, they are considerably higher than the overall 22%. Prosus thinks that, at the current course and speed, its non-Tencent ecommerce portfolio is on track to exceed $100 billion (and therefore catching up to the ~$160 billion value from Tencent’s stake now) in the next few years and can meaningfully expand beyond that after.
On the composition of the future $100 billion portfolio, Bob van Dijk (the CEO) said that “it’s hard to predict the future in detail. But I think you’ll see that the current core four verticals make up the bulk of that where, based on current growth rate, I think food will be a very large part, but classifieds will be as well, because not only are we seeing strong momentum in the core, but we’re also seeing that in auto transactions in particular, which could just be another OLX in a few years. We actually don’t see we need a very large amount of additional investment in there. Yes, there will be, but this is a more organic development from where we are today.
And, look, we will see, right, to what extent these will be fully owned and partially owned, and in food and in Edtech, obviously, we are already in a situation where we have partial ownership. And I think that, in a few years’ horizon, we could see some of our core segments actually go to market in an IPO.”
On its investment selection, Bob also said that “we’ve been extremely selective for many years, right? If you look at how we’ve invested, we typically invested in one out of 100 or several 100 opportunities that we’ve screened. And I think that has allowed us to create the kind of IRRs that we’ve created, like you don’t get to 22% by being indiscriminate and even if you look at the last few years, right when I would argue that valuation levels have been quite significant in the last few years, we actually have seen our IRRs to be better in the last few years…
So, I think for us, the reason why we’ve seen that long term high returns is because we’ve been selective and also we’ve gotten better at understanding the businesses we’re in which has allowed us to again to do better investments and create more enough in the Prosus, so you can expect us to continue to be selective, to continue to put the bar high and then when we see the opportunities we take them and if we don’t, we don’t because that is hard to predict, but the level of selectiveness is one that’s consistent, and our commitment to driving great returns.”
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