JOHANNESBURG South African e-commerce and media firm Naspers NPNJn.J, the continent's biggest company by market value, posted a surprise 2 percent drop in full-year earnings on Monday after ratcheting up expansion spending, sending its shares lower.
Naspers used 7.7 billion rand ($719 million) on development spend, a 79 percent jump from a year ago. It also holds $1.6 billion offshore that can be used partially for acquisitions and further expansion, its chief executive said.
Analysts polled by Reuters had forecast core headline earnings, which exclude some one-off items and considered the main measure of profit, would rise by as much as 15 percent.
They instead shrunk 2 percent to 2,181 cents per share.
"I am a little disappointed with the results," said Reuben Beelders, portfolio manager at Gryphon Asset Management.
Naspers share price was down nearly 4 percent by 1307 GMT at 1,220 rand, but were up 11 percent so far this year.
The Internet segment, which includes websites like FlipKart, Souq.com and OLX, was the biggest profit churner, riding on Naspers' shareholding in China's Tencent's 0700.HK and on Mail.ru MAILRq.L in Russia.
Naspers' stake in Tencent, China's largest listed tech firm with a market value of nearly $140 billion, is worth nearly as much as Naspers' entire market value.
Naspers has been strengthening its e-commerce muscle and in February plucked the head of its eastern European on-line marketplace, Bob van Dijk, as its new CEO.
"We are a strong believer in the potential of the Chinese internet market. It is already is the largest in the world and has grown quite strong, but that market still has a lot of runway," van Dijk told Reuters.
Despite posting a 64 percent jump in e-commerce revenue, Naspers still booked some 5.3 billion rand in trading losses for the segment, chiefly because of expansion expenditure.
"My biggest problem with this company is they are operating in a very aggressive space ... there is always going to be a component of their revenue that they have to spend as capex just to maintain their business," Beelders said.
Naspers' Multichoice business - which holds a set of lucrative television sports rights - added 1.3 million new households in the year, helping boost revenue by 20 percent.
The company's price earnings ratio is 99 times, making it one of the most expensive stocks on the Johannesburg bourse by that measure. Tencent is trading close to 50 times earnings.
"This is certainly an exciting business, but we think there is significant downside risk in the share price if the future performance of Tencent doesn't turn out as the market expects," said Nic Norman-Smith, a portfolio manager at Lentus Asset Management.
(Editing by Joe Brock)