Running out of Time, Rocket Internet Needs an IPO Hit

Rocket Internet

The Wall Street Journal on Rocket Internet in a rather negative overview on the current state at the Berlin based incubator (paywall):

In May, HelloFresh reported first-quarter losses more than tripled, to €27.3 million, despite soaring revenue.
It is just one of many deeply unprofitable companies in Rocket’s stable. The company—essentially a publicly traded “incubator” of startups—has created an empire of 100 companies in 110 countries with 36,000 employees. Several sell food. Some peddle used cars. One offers laundry services. (…)

(That is the most passive-aggressive way of describing a company’s portfolio I have seen in a long time.)

In April, Rocket slashed the estimated value of one of its biggest—Global Fashion Group—from about €3 billion to approximately €1 billion, citing share-price movement of its peers, its continued unprofitability and its emerging-markets presence.

And on HelloFresh, one of the few bright spots in Rocket’s portfolio:

HelloFresh is battling rivals in the U.S., and rejection in at least one country, France, where consumers have turned up their noses at the concept. Two former HelloFresh executives said the company didn’t attract as many subscribers as expected when it launched five years ago. They said one impediment was that the service appealed to a niche audience: affluent 20- or 30-something couples who consistently prepared dinner at home.

HelloFresh is going to be fine. The startup just needs more time to refine its model and processes -both having a lot of room to grow-, while being on a promising course. But time is not what Rocket Internet has right now.

Rocket Internet’s stock price is now down to a third of its peak. Trust in the company builder is not at its peak right now, to say the least. Given the fact that Rocket relies on “by the numbers” opportunists rather than passion driven founders to run its startups, articles like this one are not going to help. Rocket’s reputation once was of a fierce force, fast and strongly implementing ideas the company saw were working elsewhere (usually in the U.S.). Combined with a lot of money to invest (for marketing no less), Rocket was feared.

Slowly but surely, that seems to stop being the case. And that is a problem for Rocket Internet; for talent retention, for competing with (local) startups. (It helps being universally feared in the local markets your startups operate in. If nothing else, it makes potential investors in your competitors second-guess their odds of winning against you.)

It looks ever more strongly now that my assumption of Rocket’s model being destined to make the company at best an “also ran” is turning out to be true.

Update: Reuters, from a few days ago, via VentureBeat:

Exclusive interviews with shareholders reveal growing scepticism about Rocket’s sprawling empire as emerging markets sour and technology stocks cool. Its share price has fallen 39 percent this year.

“People have started to question whether the company portfolio is really as good as we first thought,” said a top 20 shareholder, who declined to be named as they expect to trade stock. “A lot of trust has been destroyed over the last 12 months.”

​Not all investors share the same point of view:

“We believe that the portfolio is worth a lot more,” said Ralph Dommermuth, chief executive of United Internet, Rocket’s third-biggest shareholder, even after he took a 157 million euro writedown on his firm’s Rocket stake in May.

“Among European investors in young Internet firms, Rocket Internet is the broadest and has the most experience in the sector.”

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