Naspers (JSE:NPN): Can Transient Gains Mask a Weakening Core?

The South African tech giant Naspers has long been a poster child for outsize returns fueled by its stake in Tencent, but the company's financial performance over the past two years raises critical questions about the sustainability of its profit growth. While headline earnings surged by nearly 100% in FY2025, underlying metrics reveal a more complex story. This article dissects whether Naspers's reliance on unusual items and volatile EPS trends threatens its long-term value—or if the stock remains a compelling buy at current discounts.

The Numbers: A Tale of Two Earnings Metrics

Naspers's financial statements present a stark dichotomy. Core headline earnings, which exclude one-off items like Tencent sell-down gains and impairments, rose by 53.9%-63.2% in FY2025, driven by growth in consolidated Ecommerce businesses (e.g., Takealot in South Africa, OLX in Europe/Latin America) and improved efficiency. However, headline earnings—the metric most analysts focus on—jumped by 90.9%-100.0%, largely due to reduced impairment charges and gains from Tencent sales. Meanwhile, EPS (earnings per share) declined in FY2024 (-24.38% to -17.13% for continuing operations), only to rebound sharply in FY2025.

The divergence highlights a critical flaw: Naspers's headline growth is partially artificial, inflated by non-operational gains. To understand the risks, investors must parse the “adjusted” metrics and ask: Is the core business improving enough to justify the stock's valuation?

The Role of Unusual Items: A Crutch or a Catalyst?

The company's financial health hinges on its ability to separate operational performance from one-off events. The provided data identifies several key drivers of volatility:

1. Tencent Sell-Down Gains: While Naspers's stake in Tencent remains its crown jewel, gains from incremental sales of shares have been a recurring theme. These sales, however, are a finite resource. The FY2024 EPS decline was partly due to reduced Tencent gains compared to prior years. Over time, this strategy risks becoming a liquidity play rather than a source of sustainable profit.

2. OLX Autos Disposal: The reclassification of OLX Autos as a discontinued operation in FY2024/2025 required restatements of prior-year results. While this cleans up the P&L, it also underscores the fragility of Naspers's portfolio. Investors must ask: Are such disposals masking underlying weakness in non-core assets?

3. eMAG's One-Off Costs: Even within its Ecommerce core, Naspers faces operational hiccups. In FY2025, eMAG (its Romanian subsidiary) incurred Hungarian one-off costs in H1, which were offset by adjustments to arrive at an improved aEBIT (adjusted EBIT). Such costs could recur in other markets, compressing margins.

Risks of Overvaluing Transient Earnings

The surge in headline metrics risks lulling investors into complacency. Consider three key vulnerabilities:

• Tencent Dependency: Naspers's valuation is inextricably tied to Tencent's stock price, which itself is subject to macroeconomic and regulatory headwinds in China. A Tencent slump could destabilize Naspers's earnings.

• Ecommerce Growth Sustainability: While Ecommerce segments like Takealot and OLX are growing, they operate in highly competitive markets. The “lifestyle ecosystem” strategy (e.g., combining e-commerce with fintech and logistics) requires massive capital expenditure. Can Naspers maintain margins while scaling?

• NAV Discounts and Share Repurchases: Naspers trades at a steep discount to its net asset value (NAV), per Seeking Alpha analysis. While buybacks are shareholder-friendly, they may also signal a lack of better reinvestment opportunities.

The Investment Thesis: Buy the Core, or Bail on the Noise?

For investors, the question is whether Naspers's core Ecommerce and AI-driven initiatives justify its current valuation. The positives are clear:

• Ecommerce Growth: Takealot's expansion in South Africa, OLX's dominance in LatAm and Europe, and the Despegar acquisition in travel tech suggest a coherent strategy. The FY2025 core headline growth of ~58% (vs. 125% in FY2024) hints at maturing operations, not just one-off boosts.

• AI Innovation: The pivot to AI in logistics, customer analytics, and fraud detection could unlock efficiencies. If executed well, this could be a long-term differentiator.

However, the risks are equally stark:

• Over-Reliance on Adjustments: The exclusion of one-off costs in core metrics raises red flags. For instance, eMAG's Hungarian costs were a “one-off,” but similar issues in other markets could recur.

• EPS Volatility: The 2024 EPS decline (despite headline growth) shows how dependent Naspers is on non-operational factors. A repeat of such volatility could spook investors.

Final Analysis: Hold for the Core, but Beware the Headline Illusion

Naspers's stock (JSE:NPN) currently trades at a 27% discount to its NAV, offering a margin of safety for long-term investors. However, the path to value creation hinges on two factors:

1. Core Ecommerce Profitability: Can Naspers sustain or expand margins in key markets without relying on Tencent gains or asset sales? The FY2025 Ecommerce performance is promising but needs consistency.

2. Tencent's Longevity: While Tencent remains a cash cow, its valuation is highly sensitive to Chinese internet policy. Investors must weigh the risk of a Tencent-led shock against Naspers's diversified assets.

Investment Advice: Naspers is a “buy” for investors with a 5+ year horizon, provided they are comfortable with the Tencent dependency and macro risks. However, short-term traders should avoid it due to EPS volatility and the potential for one-off gains to evaporate. The key takeaway: Focus on core metrics, not headline numbers—and be prepared for turbulence along the way.