Handelsblatt Exclusive

Board Battle at Rocket Internet

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Rocket Internet, one of Germany's high-tech darlings, is struggling amid falling profits, share prices and now the sudden departure of its chairman, who was the representative of a big Swedish shareholder called Kinnevik. That spells trouble for co-founder Oliver Samwer, who is pictured.
  • Why it matters

    Why it matters

    Rocket Internet made a high profile public debut last year, raising €1.4 billion, or $1.5 billion, but the company still needs to prove its investments can make money.

  • Facts

    Facts

    • Loss-making Rocket Internet holds investments in hundreds of online startups and is most famously known for helping to grow German online fashion retailer Zalando.
    • Berlin-based Rocket Internet has replaced its supervisory board chairman, Lorenzo Grabau, who heads major shareholder Kinnevik, with the board’s deputy chairman, Marcus Englert.
    • Nine-month revenue at Rocket’s biggest online retailers jumped 120 percent to €2.17 billion, but operating losses amounted to €629 million.
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    Audio

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Imagine, for a moment, that a major public company in Europe suddenly suffered an exodus of department heads in finance, human resources, technology and public relations.

Then, as if that weren’t alarming enough for investors and analysts, the non-executive supervisory board chairman bolts.

Germany’s Rocket Internet, the online startup platform which raised €1.4 billion, or $1.5 billion, last year, finds itself “in exactly this situation,” one company insider, who declined to be named, told Handelsblatt.

Once the unabashed rising star of Europe’s technology sector with a portfolio of online retailers valued at €6.1 billion, the mood at the company’s headquarters in Berlin now mirrors the trajectory of its share price: downward.

“There was an explosion between Kinnevik and Rocket.”

Rocket Internet employee

On Wednesday, the Berlin-based company revealed the resignation of its supervisory board chairman, Lorenzo Grabau, in addition to an operating loss of €629 million at its 13 biggest startup investments in the first nine months of 2015.

Mr. Grabau is chief executive of Swedish venture capital firm Kinnevik, which is the single-largest shareholder of Rocket Internet after the Samwer brothers, owning 13 percent of Rocket’s stock.

Deputy Chairman Marcus Englert will replace Mr. Grabau, who remains a member of the board, but the sudden move signals a dispute between shareholder Kinnevik and Rocket’s co-founder and current chief executive, Oliver Samwer.

 

Kinnevik CEO Lorenzo Grabau and executive chairwoman Cristina Stenbeck scaled Source Kinnevik
Lorenzo Grabau, left, has stepped down as chairman of the supervisory board of Rocket Internet. Mr. Grabau is CEO of Swedish investment group Kinnevik, which holds a 13-percent stake in Rocket. Cristina Stenbeck, right, is the executive chairwoman of Kinnevik’s board and the supervisory board chairwoman of Zalando. Source: Kinnevik

 

Together with his brothers Marc and Alexander, Oliver Samwer founded Rocket in 2007 and they jointly became billionaires following the 2014 public listing.

Officially, the Swedish firm said the board shuffle came about because of a conflict of interest. The company needs an “independent supervisory board chairman,” as is the norm in Germany, not a shareholder. Rocket Internet says much the same.

But if that were true, wouldn’t Kinnevik executive chairwoman Cristina Stenbeck then have to give up her chairmanship of online fashion retailer Zalando? Kinnevik also holds a 32-percent stake in Zalando, which Rocket helped to grow between 2008 and 2013.

“Kinnevik and Rocket had, and have, a very close and trusting collaboration and partnership,” a Rocket spokesperson told Handelsblatt.

But according to an internal company source who spoke on the condition of anonymity, “there was an explosion between Kinnevik and Rocket.”

The blowup may have been bubbling under the surface for some time.

 

Rocket Internet Sputters-Dec 17 2015

 

Mr. Samwer met Ms. Stenbeck at a wedding in 2010. The billionaire Swedish-American heiress of the Stenbeck family’s industrial empire soon invested in online fashion retailer Zalando and in many other Rocket companies, as well as in the holding company.

Whatever the relationship was, it has since soured over disagreements about the planned IPO of Rocket’s online grocery service HelloFresh, which led to Mr. Grabau’s brisk resignation, according to the source.

Ms. Stenbeck, who is not directly invested in HelloFresh, was opposed to the IPO. As a result, Mr. Samwer delayed HelloFresh’s public market debut earlier this year, in which he originally sought to reel in half a billion euros in proceeds and create financial breathing room for Rocket Internet.

During Rocket’s third-quarter conference call on Wednesday, Mr. Samwer said he hoped to take at least one company public in the next 18 months. While he didn’t say that company would be HelloFresh, he did say the online grocery delivery subsidiary “will be much larger than most expect.”

Size, however, may not determine success.

“The days when pure growth provided for euphoria are over,” said Andreas Feiden, owner of consultancy Finnovativ. “Quality and getting into the black play a much bigger role with investors now.”

In the end, there’s more at stake than financial results or IPOs.

Behind the curtains, a culture war is raging over whose business philosophy is better: The quiet persistence of an established business or the aggressive pace of a young online revolutionary.

Clearly, Ms. Stenbeck represents the former, even though she has shown an aptitude for online innovation and disruptive business models by turning Zalando into a billion-dollar public company that recently began posting a profit.

 

Christina Stenbeck executive chairwoman of Swedish investment firm Kinnevik shareholder of Zalando and Rocket Internet Source IMAGO
Cristina Stenbeck looks after her investments. Source: Imago

 

Rocket Internet held a stake in Zalando until 2013. The online fashion retailer also listed in October last year, raising €605 million. Its shares have risen 67 percent since then, valuing Zalando at €8.75 billion, more than the €4.5-billion market capitalization of Rocket Internet.

In contrast to Ms. Stenbeck, Mr. Samwer embodies the online revolutionary. But it may be time for him and Rocket Internet to take a page from their more mature counterparts.

Disgruntled current and former insiders whisper that the company is creating internal discord far beyond disappointment over its share price, which is down more than 30 percent since its IPO. They complain that almost every problem Rocket Internet is trying to solve boils down to questions over responsibility and – above all – trust.

“At Rocket, one year after the IPO, they still act like pubescent children who think the market revolves around them – but it doesn’t,” one former employee bitterly told Handelsblatt.

The company, said the ex-employee, is run “like a snack shack, founding one startup after another.” In doing so, however, Rocket Internet has forgotten “it is no longer a startup itself.”

Moreover, Mr. Samwer has greeted the recent “brain drain” with a mere shrug of his shoulders, said sources. But the departures included key executives such as Martin Biermann, Rocket’s former chief technical officer, Vera Termühlen, the former head of human resources, and Andreas Winiarski, former head of communications.

“Rocket is a partial shade plant that was planted in full sun,” in the view of one insider.

The company has “light” listing on the Frankfurt Stock Exchange which allows it to disclose less financial details than with an ordinary listing.

Some experts have also questioned a surprise capital increase a few months after the listing. Early this year, Rocket raised almost €600 million, which has weighed on its share price.

 

Rocket Internet WTB 2014 05_2015-01

 

“The last half year Rocket has suffered a collapse of confidence on the capital market,” a person familiar with the company told Handelsblatt.

On Wednesday, Mr. Samwer, the chief executive, could do little to counter the negative momentum when he and Rocket’s chief financial officer, Peter Kimpel, presented investors with the company’s blood-red financial results for the first nine months of 2015.

They started on a positive note: revenue from the more than a dozen online retailers Rocket calls “proven winners” – whose products and services span from food and fashion to home and general merchandise – jumped 120 percent to €2.17 billion compared to last year’s first nine months.

Collectively, however, Rocket Internet’s “proven winners” remain little more than loss-making startups.

The company highlighted its average profit margin improvement – measured by earnings before interest, taxes, depreciation and amortization, or EBITDA – of 4 percentage points. But not one of its proven winners is in the black. Together, their operating losses still amount to 29 percent of revenues, or €629 million in total.

Mr. Samwer, who founded Rocket Internet with his brothers Marc and Alexander in 2007, told investors: “The peak of combined EDITDA losses of our proven winners is in 2015.”

Three of the companies would break even by the fourth quarter of 2017, he predicted.

All this could not keep Rocket Internet’s shares from falling 3 percent on Wednesday to €28.20, a two-week low. On Thursday morning, the stock was up 0.5 percent.

 

Christof Kerkmann is an editor for Handelsblatt and writes about the technology sector. Katharina Schneider is an editor in the finance section of Handelsblatt, covering tax changes, consumer rights and private investment. Miriam Schröder is based in Berlin and covers the city’s start-up scene. Thomas Tuma is a deputy editor in chief at Handelsblatt. To contact the authors: kerkmann@handelsblatt.com, kschneider@handelsblatt.comm.schroeder@handelsblatt.com and tuma@handelsblatt.com 

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