Prosus NV: A Tech Turnaround Play at a 20% Discount

The global tech sector has been a rollercoaster in recent years, with valuation contractions and growth skepticism dominating investor sentiment. Amid this environment, Prosus NV (PROSY) stands out as a rare opportunity: a company executing a multiyear operational turnaround, leveraging AI-driven synergies across its e-commerce and fintech ecosystems, and trading at a 20% discount to its net asset value (NAV). The recent Q1 2025 results—though not explicitly detailed—highlight the underlying momentum of FY2025's record performance: 21% e-commerce revenue growth, a $443M surge in adjusted EBIT, and positive free cash flow for the first time. These metrics, combined with disciplined capital allocation and shareholder-friendly policies, position Prosus as a compelling value play for investors willing to look past short-term integration risks.

The Operational Turnaround: From Losses to Profitability

Prosus's transformation hinges on its shift from a passive investor in tech giants like Tencent to an active operator of high-growth e-commerce and fintech platforms. Its FY2025 results underscore this pivot:

• E-commerce Revenue Growth: The 21% rise to $6.2B was fueled by standout performances in its core segments:
• iFood: A 30% revenue jump in Brazil's dominant food delivery platform, with GMV up 32% and orders rising 29%. Its AI-driven merchant platform and cross-selling of credit products expanded margins to 27%, boosting aEBIT by 178% to $226M.
• OLX Group: Classifieds revenue grew 18%, with motors and real estate segments leading at 24% and 23% respectively. Margin expansion to 35% pushed aEBIT up 61% to $270M.

• eMAG: Romania's largest e-commerce player turned profitable, with aEBIT improving $40M to $14M despite one-off costs.

• Adjusted EBIT Surge: The twelvefold increase to $443M (from $38M in FY2024) reflects not just top-line growth but operational discipline. Costs were slashed via AI tools: iFood's route optimization cut logistics expenses by 15%, while PayU narrowed its aEBIT loss by over 100% to $11M.

• Free Cash Flow Milestone: Prosus's first year of positive free cash flow ($513M improvement) signals a critical inflection point. Combined with a 100% dividend hike to €0.20 per share, this underscores management's commitment to returning capital to shareholders while maintaining growth momentum.

Capital Allocation: Prudent and Strategic

Prosus's capital allocation strategy is a masterclass in balancing growth and profitability. In FY2025:
- $7.8B was invested to strengthen regional ecosystems, including 316 new dark stores for Swiggy's quick-commerce business and the acquisition of travel platform Despegar.
- $50B in buybacks since 2020 have reduced its share count and narrowed the NAV discount by 15%.
- The proposed Just Eat Takeaway.com merger—if approved—will create a European tech leader with AI-driven logistics and cross-selling opportunities.

This approach contrasts sharply with the “growth-at-all-costs” model that plagued many peers. Instead, Prosus is prioritizing scalable, profitable ecosystems, as seen in eMAG's full-year profitability and OLX's margin expansion.

AI-Driven Ecosystem Synergies: The Next Growth Lever

Prosus's “AI-first” mindset is a key differentiator. AI-native startups and operational upgrades are unlocking synergies across its global platforms:
- iFood's Clube loyalty program now integrates Despegar's travel bookings, creating a “super app” with cross-border GMV potential.
- Swiggy's quick commerce leverages AI for dynamic pricing and inventory management, driving a 101% GOV surge in Q1.
- PayU's $1.3B fintech revenue is being boosted by AI-powered credit scoring and fraud detection, reducing losses while expanding access.

These synergies are compounding Prosus's competitive moats. For instance, iFood's 27% margins now rival Amazon's core e-commerce business, while OLX's 35% margins signal pricing power in fragmented markets.

Risks and Mitigants

The 20% NAV discount isn't arbitrary. Risks include:
1. Geopolitical exposure: Prosus's 28% stake in Tencent remains vulnerable to U.S.-China tensions.
2. Integration hurdles: The Just Eat deal and Despegar acquisition require seamless tech and brand alignment.
3. Regulatory pushback: High-growth markets like India face antitrust scrutiny (e.g., PayU's TPV growth).

However, these risks are manageable. Prosus's diversified portfolio (spanning 15+ markets) and $16B cash balance provide a buffer, while its “local first” strategy minimizes overreliance on any single market or asset.

Investment Thesis: Buy on Dips, Target NAV Convergence

Prosus's stock trades at a €18.50 share price versus an estimated €23 NAV (per management guidance). Closing this gap—via continued EBIT expansion, NAV accretive buybacks, and merger synergies—could deliver a 25%+ upside by late 2026.

Key Catalysts for 2026:
- Margin Expansion: Prosus aims to match FY2025's $405M incremental EBIT in 2026. With iFood and OLX margins already industry-leading, further gains are achievable via AI-driven cost efficiencies.
- NAV Discount Narrowing: A €0.20 dividend and $5B+ buybacks (if maintained) could reduce the discount to single digits by end-2026.
- Just Eat Synergy Realization: A successful merger would unlock €300M+ in annual synergies, boosting Prosus's European footprint.

Final Call: A Contrarian Play with Asymmetric Upside

Prosus is a classic value trap turned turnaround story, offering asymmetric risk/reward at current levels. The stock's -20% YTD performance has priced in near-term risks, yet the 21% e-commerce growth, AI-powered margins, and shareholder-friendly policies suggest a compelling entry point.

Recommendation:
- Buy Prosus on dips below €18/share, with a 12–18-month target of €23 (NAV convergence) and a long-term upside of €28+ (if Tencent risks subside).
- Hold for investors seeking tech exposure with a clear path to profitability and capital returns.

The road to NAV parity isn't without speed bumps, but Prosus's execution to date—and its AI-driven playbook—suggests this is a discount worth chasing.

Disclosure: This analysis is for informational purposes only and does not constitute financial advice. Always conduct your own research before making investment decisions.