Fears over Naspers' heavy dependence on its investment in Tencent have been re-ignited as rising Internet and gaming restrictions in China look set to hurt the Chinese business and heavily impact Naspers' future growth.
This as Naspers' growth is heavily pinned to its 33% share in Tencent which is worth more than Naspers itself.
Over the last month, Chinese regulators have closed celebrity gossip Web sites, restricted what video people can post and suspended online streaming as a way to restrict what it calls "inappropriate content".
The country's crackdown on Internet content saw Tencent this week announcing it would limit game time for underage players on its top-grossing "Honour of Kings" game, a move investors fear could hurt the Chinese media giant's bottom line.
The company said "Honour of Kings" players below 12 years of age would be limited to one hour of play time each day, while those aged 12 to 18 would be limited to two hours a day, responding to concerns from teachers and parents that some children were addicted to the game.
China's official government newspaper, the People's Daily, has also criticised Tencent twice this week, describing "Honour of Kings" as "poison" which is harmful to children and calling for stronger regulation of online games to prevent addiction.
Tencent is China's biggest gaming and social media firm by revenue, and according to Reuters, shares in the company fell nearly 4% this week up to the close of trade on Tuesday, wiping around $12 billion off its market value.
The stock did, however, recover on Wednesday, reversing earlier losses. This as Tencent tried to shrug off financial concerns over the game time limits, saying those targeted make up only a small portion of its overall user base.
"[Those] under 12 years old constitute a small proportion of our total user base and a smaller percentage of our paying user base. We do not expect these measures will have a material impact on our overall financial results," Tencent told Reuters via e-mail.
However, Tencent's battles in China still sent Naspers' stock sliding, with the share closing 4.37% lower on the JSE yesterday. Year-to-date, the stock is still up over 24% and Naspers has a market cap of around R1.09 trillion, making it Africa's biggest company by market value.
This morning, the stock had recovered by over 1% and at 11:00 CAT was trading at R2 513.57 per share after yesterday's drop to R2 488.00.
Tencent reliance
Naspers owns a third of Tencent, with the stake worth about $114 billion (R1.5 trillion) - or over R400 billion more than Naspers itself. The widening discount between its market value and that of its stake in the Chinese Internet company has started to make investors jumpy.
However, Naspers CEO Bob van Dijk last week batted away suggestions it should spin off the lucrative stake in Tencent as a solution to close the widening discount.
"From the moment Tencent was listed on the Hong Kong stock exchange, some had been asking us to do that. You can imagine how unhappy shareholders would be if I had done that 10 years ago," Van Dijk told Reuters in a telephone interview.
The value of Naspers' stake surged from around $231 million to around $114 billion in 2004 when Tencent was listed in Hong Kong.
However, there is no denying the company is still extremely profitable for Naspers. Tencent shot past forecasts to post its highest quarterly profit in over two years in May, helped by strong growth in gaming and payments. Tencent's profit increased by 58% to $2.08 billion, while revenue was up 55%.
How much impact rising Chinese government regulation of Internet content will have on the company going forward remains to be seen.
On 23 June, Naspers said its revenue for the year ended 31 March 2017 had increased 19% year-on-year to $14.6 billion. Revenue in the Internet segment, which now accounts for 73% of group revenue, was up 29% to $10.6 billion. Trading profit increased 52%, mainly due to Tencent's excellent results and increased profitability of the more mature e-commerce assets, said Naspers.
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