Why Rocket Internet Is So Hard to Assess (And Why That’s a Problem for Rocket)

Rocket Internet

Since Rocket Internet went public, every time I am asked to assess the company I usually answer unsatisfyingly that the Berlin based company builder is a haystack where outsiders trying to look in can not know wether or not a needle may be hidden inside, waiting to be found.

Going into dozens and dozens of markets around the world and starting up new companies, with these companies usually being the first of their kind in those markets-or at least at the forefront-: All this makes it really hard to assess what the whole might be worth or even where this is heading.

The information the company has been providing to the general public is not helping either. Quite to the contrary. Rocket Internet is well known by now that, whenever possible, the company chooses frustrating shareholders over showing its hand to the public.

That Rocket Internet is slowly backing away from company building without explicitly saying so doesn’t help either. The investment into Delivery Hero, to be said a one-shot by Rocket management at the time, has turned out to be the first sign of Rocket expanding, or -more accurately- shifting, its core model. (In Germany, rumors are making the round that Rocket Internet is going after every new notable startup, desperately offering favorable terms just to get on board as an investor.)

Here’s a recent example of this communication behavior involving HelloFresh, one of the few bright spots within Rocket, as chronicled by Bloomberg’s Gadfly:

A French tech publication called le Journal du Net seemed to have found a missing piece of the jigsaw last week. It published a story that included slides of undisclosed and bullish financial projections for HelloFresh, a meal kit start-up backed by Rocket Internet that competes with Blue Apron in the U.S. The slides appeared to show it would more than double revenue this year, turn profitable on an adjusted Ebitda basis next year, and hit a 15 percent margin on the same basis in 2018. […]

Berenberg analyst Sarah Simon then published a note on Tuesday that analyzed those leaked figures and concluded they implied a Hello Fresh valuation higher than the 2.6 billion euros ($2.9 billion) disclosed by Rocket in September. […]

A HelloFresh spokeswoman told me that the slides published by the French website were incorrect and did not correspond to the start-up’s business plan. When I asked Rocket for comment, they refused to say anything about the financial projections or anything else about HelloFresh.

Huh?

Rocket is the majority owner of HelloFresh with a 56 percent stake; it knows if those slides are right. The numbers are in the market, and a respected bank has issued a note republishing them in whole. Meanwhile, Rocket’s shares climbed as much as 4 percent in the hours after the note came out even as European markets traded lower, showing that at least some investors thought the information was credible.

​ It is not all doom and gloom with Rocket, as this story in Tech in Asia shows:

It’s easy to forget that Rocket was the first institutional investor in ecommerce in Southeast Asia, leaping in with an Amazon clone called Lazada. Its bets in Africa are also paying off – the value of its holding group is over a billion dollars with Goldman Sachs recently ploughing in hundreds of millions of bucks into operations there. […]

But one region showing immense potential is the Middle East. Namshi, the Zalora equivalent for Saudi Arabia, UAE, Qatar, Kuwait, Oman, and Bahrain is – wait for it – a Rocket Internet startup that’s actually profitable. […]

Namshi’s financials indicate the company is well on track to dominate online fashion retail in the six markets it operates in. Net merchandise value, or the amount shoppers spend on the site, grew by 50.5 percent in the first six months of the year. Gross profit growth was also strong, increasing by 53.1 percent compared to the corresponding period last year.

But how to take that into account when the company itself has a hard time communicating where business is actually thriving and where it is not? Bloomberg’s anecdote shows that Rocket Internet doesn’t even seem to be willing to set the record straight at times.

All this may change soon, once Rocket Internet has switched to the regulated market (Prime Standard) of the Frankfurt Stock Exchange, which requires more information to be made public.

I wouldn’t hold my breath though when it comes to getting a better handle on the holding’s businesses. The company has yet to show it is willing to treat its shareholders like, well, shareholders.

One doesn’t need to be a financial expert to guess what this behavior means for Rocket Internet’s stock.

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  1. […] Speaking of Rocket Internet, Bloomberg recently published a very long in-depth look at Rocket Internet, complete with an interview with Oliver Samwer (obviously intended by Rocket to ease Rocket Internet’s complicated relationship with the public) and, more interestingly, quite a few statements from former employees: […]

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