downward trajectory

Rocket Internet Posts Half Billion Euro Loss

Rocket Internet Reuters
It's been a roller-coaster ride for Rocket Internet. Picture Source: Reuters.

Rocket Internet’s investors cannot be happy. The e-commerce company’s financials have not improved, in fact, they have gotten much worse. In 2016, the online startup incubator posted a €565 million ($598 million) loss before tax and interest. That’s twice as much red ink as in the previous year.

Rocket Internet’s executives are doing their best to put on a brave face for shareholders. Chief Financial Officer Peter Kimpel said on Tuesday that despite trouble at the holding company, Rocket Internet’s individual startups are actually well on their way to profitability.

“When our portfolio companies generate good results, that will be reflected in Rocket Internet over the long term,” Mr. Kimpel said.

In other words, Rocket Internet is telling investors to hold out just a bit longer – the company is the verge of turning the corner. Key investors, however, are done waiting and have already started to jump ship.

The biggest hit came from the Global Fashion Group, an e-commerce fashion company that focuses on emerging markets. Its valuation was slashed by two-thirds to €1 billion after a funding round last year.

But even in the case of GFG, Rocket Internet is not admitting any mistakes. Mr. Kimpel said the write-down had nothing to do with GFG’s performance and chalked it off instead to a difficult market environment.

To soften the news of the loss, Rocket Internet’s leadership pointed to a select group of five startups that managed to boost revenues from €1.7 billion to €2.2 billion and reduce losses by €234 million to €360 million.

“In 2016, our select companies made more progress on the road to profitability and at the same time boosted revenues,” said Oliver Samwer, Rocket Internet’s chief executive. The company is also seeking to move outside its comfort zone and tap markets other than retail, such as logistics.

The new startup Instafreight, for example, matches truckers who have excess capacity with businesses that need to ship cargo – an Uber for freight transport. It’s a potentially lucrative market. By 2020, an estimated 3.7 million tons will be transported across Germany, 70 percent of it by truck.

In other words, Rocket Internet is telling investors to hold out just a bit longer – the company is the verge of turning the corner and still has a few cards up its sleeve. Key investors, however, are done waiting and have already started to jump ship.

Rocket Internet, however, has turned out to be a one-hit wonder. Investors have been waiting in vain for another initial public offering ever since Zalando’s success.

In February, the Swedish investment firm Kinnevik sold half of its stake in Rocket Internet, a major blow to the e-commerce company. The Swedish investors were among Rocket Internet’s largest shareholders, second only to the Samwer family, the company’s founders.

It’s been a tough fall from grace for Oliver Samwer, Rocket Internet’s chief executive. In 2014, Mr. Samwer won bragging rights when he defied the critics and floated the startup Zalando, which brought in €600 million and went on to become Europe’s largest online fashion retailer.

Rocket Internet, however, has turned out to be a one-hit wonder. Investors have been waiting in vain for another initial public offering ever since Zalando’s success.

Rocket Internet’s meal-kit startup Hello Fresh had planned a flotation, but was forced to call off its IPO due to a lack of interest. Investors scoffed at Hello Fresh’s valuation of €2 billion as too high for a company that continues to suffer millions in losses.

The pizza-delivery service Delivery Hero might draw more interest with its plans for an initial public offering this year. Rocket Internet owns a 40-percent stake in the startup, which boosted its revenues 80 percent to €297 million in 2016.

Delivery Hero will present its complete results for 2016 on Wednesday. They are expected to be negative, like most of Rocket Internet’s startups these days.

Miriam Schröder is based in Berlin and covers the city’s start-up scene. m.schroeder@handelsblatt.com

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