IPO Success

Shoe Fits for Zalando

Cinderella Zalando_dpa
Oversubscribed, the IPO of online shoe retailer Zalando exceeded expectations.
  • Why it matters

    Why it matters

    The successful IPO of Zalando could be a harbinger for the IPO tomorrow of Internet incubator Rocket Internet, which is more than three times larger.

  • Facts

    Facts

    • Zalando, a German online shoe retailer, raised €605 million in an IPO in Germany.
    • Rocket Internet, the former parent of Zalando, is aiming to raise €1.6 billion in its own IPO on Thursday.
    • The two IPOs could harken a new, more aggressive phase of dot.com financing in Germany.
  • Audio

    Audio

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Forget about loss-making Internet companies. Forget about the dot.com bubble and bust in 2000.

At least for now, that is.

German online fashion retailer Zalando successfully sold new shares of stock over the Frankfurt Stock Exchange on Wednesday, raising €605 million ($764 million) and valuing the company at €5.4 billion ($6.8 billion).

The stock was trading at 10:56 a.m. in Frankfurt up 7.3 percent at €23.08, above its issue price of €21.50. In early trading, the stock rose to €24.49. In terms of market value, Zalando’s listing is the largest so far this year, according to Deutsche Börse data.

Despite the increase in Zalando’s share price, some analysts said that its climb after the IPO had been disappointing.

“The stock price has come under a bit of pressure at the start of trading, almost touching the issue price of €21.50,” said Stefan Wimmer, a media and retailer analyst at German bank Metzler in Frankfurt. “Since then, it has improved a little, but compared to the prices in the grey market the last few days, the response is muted.”

Nevertheless, the listing of Zalando, which was created in 2008 and grew into Europe’s largest online shoe retailer, could signal even greater returns tomorrow for Rocket Internet, the online tech business incubator and former Zalando investor that hopes to raise up to €1.6 billion in its own German IPO.

Shares in Zalando were snapped up by investors keen to participate in the growth of online commerce in Europe’s largest economy.

“Investors are looking for Internet stocks and want to participate in the current Internet success,” Amir Darabi, an analyst at Bayerische Landesbank, said before the sale began.

The flotation of Berlin-based Rocket Internet, which was created in 2007 by three German brothers, Marc, Oliver and Alexander Samwer, is set to become the largest listing of a German Internet company since the dot.com collapse almost 15 years ago.

The flotation of Rocket Internet is set to become the largest listing of a German Internet company since the dot.com collapse nearly 15 years ago.

Zalando and Rocket are leading the way in Germany’s resilient IPO market. Online market place and retailer Scout24 and German cable television operator Tele Columbus plan to sell shares. Tele Columbus wants to raise at least €300 million to finance growth, the cable operator said on Tuesday.

Limited investment opportunities in German online firms contributed to high demand for Zalando and Rocket Internet, analysts said.

“Demand for Rocket Internet will be high because so far all Internet companies were in private hands. Now, there is a possibility for institutional investors to participate in the success of Internet companies,” Mr. Darabi of Bayerische Landesbank said.

Investors globally are keen to tap into new online businesses, which are growing strongly amid the transition to the digital economy.

Chinese e-commerce group Alibaba had the largest-ever flotation on the New York Stock Exchange last month, raising a record $25 billion.

 

Planned public listings-01

 

Rocket Internet divested its stake in Zalando last year but the Samwer brothers still had a 16.7 percent stake going into the IPO through an investment fund.

The Samwer brothers and the other original shareholders, which include Swedish investment firm Kinnevik with a stake of 32 percent, Danish businessman Anders Holch Povlsen with 9 percent and Russian millionaireYuri Milner with 7 percent, will not sell their shares during the first 180 days after the listing.

Zalando shares jumped as much as 12 percent from their opening price of €24.10.

Zalando operates in 15 European countries and has 7,000 employees in Germany. The online retailer more than tripled its sales in the past three years to €1.8 billion in 2013, although net losses also almost doubled to €117 million last year. In the first half of 2014, it had a net profit of €200,000 on revenue of €1 billion.

Three Zalando executives, wearing open-collar shirts and sporting beard stubble, rang the opening trading bell in Frankfurt.

 

zalando at stock exchange_reuters
Zalando’s IPO launch caused a stir Wednesday on the floor of the Frankfurt Stock Exchange. Source: Reuters

 

The three – the two founders and executives Robert Gentz and David Schneider and board member Rubin Ritter – are all in their early thirties. Mr. Gentz and Mr. Schneider started Zalando as a shoe retailer six years ago and expanded into selling clothing and other accessories in 2010.

The sale of Zalando’s 28 million new shares — representing an 11 percent stake — was “over-subscribed well in excess of ten times,” Zalando has said.

Zalando, which has a free returns policy for unwanted products, has not specifically said what it plans to do with the money raised in the IPO other than to finance long-term growth and corporate expenses, according to its sales prospectus.

 

Gilbert Kreijger is an editor for Handelsblatt Global Edition in Berlin, where he covers companies and markets.  Lára Hilmarsdóttir also contributed to the story. To contact the author: kreijger@handelsblatt.com

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