China, EU And Tencent Risks Will Undermine Digital Platforms

Key Takeaways

• Heightened regulatory scrutiny and rising digital nationalism threaten Prosus's global scalability, portfolio revenue, and ability to achieve operating leverage and profit expansion.
  
• Heavy reliance on Tencent and complex M&A activity increase exposure to concentration, operational, and integration risks, potentially compressing margins and undermining earnings growth.
  
• Strong entrepreneurial culture, financial flexibility, and AI-driven innovation position Prosus for scalable growth, enhanced margins, and sustainable shareholder value across diverse high-potential markets.

Catalysts

Engages in the e-commerce and internet businesses in Asia, Europe, Latin America, North America, and internationally.

• Despite Prosus's optimism about operational efficiencies and AI-driven innovation, long-term growth faces material headwinds from rising regulatory scrutiny on large technology and cross-border digital investments, particularly in China and the European Union, which could dampen portfolio revenue and limit profit expansion across key regions.
  
• An increasing shift toward digital sovereignty, data localization, and tech nationalism is likely to erode the scalability of Prosus's global platforms, making it harder to extract synergies and capture operating leverage across geographies, with negative implications for consolidated top-line growth and net margins over time.
  
• Prosus remains highly dependent on Tencent for a significant proportion of net asset value and earnings; any adverse regulatory or fundamental developments at Tencent could have a pronounced detrimental impact on Prosus's consolidated revenue, core headline earnings, and free cash flow generation, exposing the company's vulnerability to concentration risk.
  
• The company's continued M&A activity, including major transactions in Just Eat and Despegar, heightens risk that significant capital will be allocated to geographies or segments beset by competitive intensity, macro volatility, or integration challenges-including overlapping regulatory regimes-which could result in lower-than-expected returns, delayed profitability, and ongoing margin pressure.
  
• Structural changes in consumer behavior, including privacy preferences and growing aversion to unified data ecosystems, may undercut Prosus's ability to leverage AI, cross-sell, and drive customer retention, forcing it to spend more on customer acquisition and compliance and leading to rising costs that compress group-level net margins and earnings growth.

Prosus Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Prosus compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Prosus's revenue will grow by 16.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 202.5% today to 76.8% in 3 years time.
• The bearish analysts expect earnings to reach $7.4 billion (and earnings per share of $3.54) by about July 2028, down from $12.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.4x on those 2028 earnings, up from 10.8x today. This future PE is greater than the current PE for the NL Multiline Retail industry at 10.8x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.7%, as per the Simply Wall St company report.

Prosus Future Earnings Per Share Growth

Risks

• Strong culture change emphasizing entrepreneurial speed, innovation, and operational efficiency is driving both revenue growth and margin expansion, with leadership confident this momentum will persist and scale up further in coming years.
  
• Prosus has delivered 21% growth in key segments, with standout performance such as iFood achieving 50% revenue growth and best-in-class adjusted EBIT margins-this suggests sustained operating leverage and scalability can drive improving free cash flows and earnings.
  
• With $11 billion in cash available for investment, a track record of disciplined M&A, and a clear focus on ecosystem reinforcement across high-potential markets such as Latin America, India, and Europe, Prosus has the financial flexibility to fund growth and reduce reliance on any single asset, supporting top-line and earnings growth.
  
• Integration of advanced AI and proprietary large language models into core platforms is enabling differentiated user personalization and demand prediction across business lines, which increases competitive moat, enhances monetization, and has the potential to accelerate both revenue and margin growth over the long term.
  
• A shift to higher dividend payouts, realization of significant synergies from recent deals (like Despegar and potentially Just Eat Takeaway), and anticipated IPOs of underlying assets all present pathways for shareholder value creation through higher return on equity and improved earnings per share.

Valuation

• The assumed bearish price target for Prosus is €41.58, which represents two standard deviations below the consensus price target of €57.77. This valuation is based on what can be assumed as the expectations of Prosus's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €70.72, and the most bearish reporting a price target of just €37.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $9.6 billion, earnings will come to $7.4 billion, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of €51.53, the bearish analyst price target of €41.58 is 23.9% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.