Dutch investor Prosus Group faces backlash over Russian subsidiary of Naspers

Three weeks after Russia’s unwarranted attack on Ukraine, the ramifications on the tech industry are still coming to light. While a number of tech companies have been forced to choose sides, which is in contrast to their past conduct, Netherlands-based Prosus Group enjoyed some kind of immunity. Not anymore.

Prosus Group, a global consumer internet group and a leading technology investor in the world, has been dragged into this crisis. Karel Burger Dirven, the 1st Honorary Consul of Ukraine to the Netherlands, has asked Prosus Group and Naspers Limited to “immediately stop all of its services in Russia.”

Will Prosus and Naspers shut down Avito in Russia?

Since the origin of the internet, technology companies have believed in not choosing sides and operating their companies with the best interest of their users. However, they have found themselves increasingly under the pressure of regulation and forced to tweak their services to cater to “law of the land” where they operate.

With the Russian invasion of Ukraine last month, tech companies realised their moral obligation and were forced to choose sides. While some companies proactively decided to stop their operations or services or sales in Russia, many others had no choice after the US, the UK, and the European countries imposed sanctions.

From the likes of Adobe, Apple, Amazon, Microsoft, Meta, Google, to BMW, Bumble, Disney, Goldman Sachs, PayPal, Samsung, and many others, the list of companies suspending operations in Russia is long. However, there are companies like Prosus Group that continue to operate in Russia. Naspers Limited, a global internet company that counts Prosus as its principal shareholder, has some tough decisions to make.

Dirven has called Bob van Dijk, the CEO of Prosus and Naspers at Prosus Group, to take immediate action against Avito, the Russian subsidiary of Naspers. Avito is among the most popular classifieds sites in Russia and is the second biggest classifieds site in the world. According to Crunchbase, it has raised a total of $1.3B and was acquired by Prosus and Naspers in 2019.

Avito primarily operates in Russia and it is presently closed to foreign traffic. However, as observed by Ukrayinska Pravda, the site can be accessed by anyone using a Russian IP. The classified site has been found to host a number of ads for military enlistment contracts.

Avito being used to recruit soldiers in Russia

The Russian armed forces is actively using Avito as a tool to recruit people for the war in Ukraine. Researcher Robert van der Noordaa tweeted about Avito being used for army recruitment and Financieele Dagblad followed up with a story looking at how Prosus is finding itself in trouble for its marketplace in Russia.

The report notes that Russia remains one of the important markets for the Dutch-South African investor. The exposure of the tech investor to the Russian market has led to concerns among its investors and the stock declined 5.3 per cent. Avito is estimated to account for 20 per cent of annual revenue of the tech investor.

While Prosus’ price has usually followed Tencent, the Chinese tech company in which Prosus has a stake of more than 30 per cent, the decline on Monday is an outlier. For Prosus, the difficulty will be policing the content on Avito without impacting its revenue from the Russian marketplace.

Financieele Dagblad further notes that the Russian contacts of Van der Noordaa have confirmed that those advertisements have disappeared from the platform. However, members of a group for Ukrainians in the Netherlands have called for a demonstration in front of Prosus’s office in Amsterdam while the Ukrainian embassy in the Netherlands has said the “company is helping Russia with its aggression in Ukraine.”

Prosus plans to divest its Russian activities

In light of the events from the past three weeks, the Dutch investor has taken some actions to distance itself from Russia. In one such step, Prosus has announced plans to divest its Russian activities and will write off nearly $769M. This divestment comes after Andrey Rogozov, CEO of Russian social network VKontakte, was sanctioned by the US. Prosus has a 27 per cent stake in the parent company of VKontakte. .

While Prosus seems to have found a way to walk away from VKontakte without any major damage to its reputation, it will find it difficult to alienate itself from Avito. As mentioned by Financieele Dagblad, Avito was originally a Swedish company with major operations in Russia. The Russian marketplace for classified is estimated to be worth more than €5B. The company employs more than 4,000 people, mainly in Russia, and Prosus is unclear whether it will see major depreciation in its value.

“It’s too early to say what the impact will be,” CEO Bob van Dijk says about the impact of US sanctions. Prosus will also find it difficult to take the money earned by Avito out of Russia due to the sanctions.

Prosus is walking a tightrope with its Russian investments. It cannot walk away directly because of the valuation and at the same time, the Dutch investor cannot sit on the sidelines either. With its large exposure to the Russian market, any decline in revenue from there will directly impact its future investments. For now, Prosus seems to be reacting to market situations instead of proactively taking action like many other companies have done since the invasion.