Takealot

Naspers' Black Sheep

Takealot: Naspers' Black Sheep (JSE:NPN)

The Takealot Group is one of Naspers' most prized possessions amongst its South African subsidiaries, but the business model may not be sustainable. This is an analysis and evaluation of the current and prospective profitability, liquidity and financial stability of the Takealot Group.

Nokuthula Matlaila & Romeo Mngqibisa | 27/01/2023

Takealot is a name that brings excitement to many with its world of endless possibilities. It is an escape for many as a land of hopes and dreams, with the many uncleared carts and wish lists that go beyond a screen's horizon.

The Takealot Group, houses well known brands such as takealot.com, MrD (formerly Mr Delivery) and Superbalist. Its parent company Naspers, one of the JSE's most diversified companies, is well known for strategically acquiring startups and brands that have a strong economic potential, usually supported by empirical performance and prospects.

Upon acquisition of its majority stake in the Takealot group, Naspers merged its online marketplace Kalahari.com into takealot.com in 2015, and its online clothing retailer Spree into Superbalist in 2018. The group’s brands have become household names, due to their quality, reliability, turnaround and often deals.

The Takealot group reported to have had a very strong year in 2021, accelerating growth and expanding its reach in all its businesses, citing its resilience on the backdrop of the devastating effects of covid-19 on households, the economy and businesses in particular.

The South African e-commerce sector continues to portray considerable promise and momentum, this success has consequently not translated into profits, due to the Takealot group having suffered a loss of $13 million (R227.5 million) in the six months to end-September 2022, Naspers reported.

This is despite takealot.com and Mr D both having grown their respective revenues by 13% and Superbalist by 15% during the same period. Naspers attributed the Takealot group's losses to three key factors, being higher fuel prices, investments in new warehouses and discounted clearance of inventory.

The latter directly affects the Takealot group's operating profits, which without a sustainable plan for the foreseeable future may further distance it from profitability as it affects the bottom line, with the group having reported trading losses of $7 million (R122 million) and $43 million (R752.5 million) in 2021 and 2020 respectively.

The added pressure from a shrinking South African economy, exposes it to dire and unfavorable macroeconomic conditions, such as rolling Eskom blackouts which require the company to keep its lights on in its warehouses and collection points, additionally on its own account. Surging global and local inflation and a repo rate, that economists and market analysts predict will still continue to increase; consequently reducing consumers' buying power, leaving potential customers with little to no money for wants.

The online retail marketplace Raru, founded by the same team as Take2 (now takealot.com), shut its doors permanently in November 2022. Naspers has confirmed in its results that the Takealot group is yet to make a profit, let alone breakeven and has been keeping its doors open using capital contributions. This has at least been positive for the group as the capital contributions have been denominated in US dollars, as the rand appreciates in value against the dollar in local currency terms.

The group’s main e-commerce marketplace, takealot.com, had its first profitable year in 2021 in the eight years it changed from being acquired as Take2, Naspers reported in its 2021 year-end results. The recently launched grocery venture between MrD and Pick n Pay arrived in a well established industry that is dominated by Pick n Pay's very own ASAP! (formerly Bottles), Checkers’ Sixty60 and Woolworths. Spar has finally entered the grocery delivery industry by launching Spar2u, in the hopes to capture a significant portion of the lucrative market and end its economic woes - that came with the chair and CEO stepping down in the wake of an investigation that revealed questionable accounting practices.

The township delivery market is one that MrD is trying to establish a stronghold in, which will most likely be one of the highlights in the group's 2023 year-end results. This market currently has players such as Delivery Ka Speed, which is gaining popularity, international recognition and is growing at an exponential rate because of having local offerings that MrD, UberEats and Bolt Food all do not cater for.

The imminent arrival on South African shores of revered US e-commerce giant Amazon in February this year has been met with hearty derision. The Takealot group’s CEO, Mamongae Mahlare in an interview on The Money Show on Talk 702 in August 2022 cited the group for establishing a lucrative industry that attracted investment. “It’s a great compliment to Takealot and the people that have built this business to where it is today, and our customers in South Africa that have supported that growth,” Mahlare said.

“It demonstrates that we have built something that has built an investment case good enough for global companies like Amazon to want to come here.”

The Takealot group's core businesses are being carpet bombed by competition from all ends, as the e-commerce business is not the only one getting ready for fierce competition. The Foschini group's launch of its new slick and stylish platform, Bash, which it claims to be South Africa’s largest omni-channel fashion and lifestyle shopping platform. It is currently in its beta phase, but already takes orders and is poised to give Superbalist a run for its money, and capture a significant portion of the online apparel retail industry.

One then ponders if the Takealot group will maintain and grow its stronghold on the South African online retail market and finally be profitable, or whether it will remain the black sheep in the Naspers portfolio of companies.

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