Rocket Internet's sales growth slows as seeks to stem losses

Reuters News
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Posted: May 31, 2016 8:07 AM

By Emma Thomasson

BERLIN (Reuters) - Shares in German ecommerce investor Rocket Internet slid on Tuesday after it reported that revenue growth slowed sharply in the first quarter at most of its top start-ups as it took steps to try to reduce their losses.

Founded in 2007, Rocket has spent heavily on marketing and logistics to build up dozens of businesses ranging from online fashion to food delivery to try to replicate the success of Amazon and Alibaba in emerging markets.

However, the firm has shifted its focus towards improving profitability this year, even at the expense of slower revenue growth, after investors have expressed concerns that its main start-ups are overvalued and are making unsustainable losses.

Rocket has pledged that the 1 billion euros ($1.12 billion)it burnt through in 2015 will mark a peak for losses and promises to make three start-ups profitable by the end of 2017.

On Tuesday it reported progress towards that goal as the quarterly absolute loss at its main start-ups fell 23 percent on the previous year to 140 million euros.

However, revenue growth slowed as it reined in its marketing spend to limit losses and was also hurt by a fall in emerging market currencies. Sales were up 34 percent at 532 million euros, but down from the 217 percent growth rate of a year ago.

"Every attempt to deliver significant business operating leverage is not coming through without significant growth degradation," said Neil Campling, head of technology research at Northern Trust Securities, who rates the stock a "sell".

"These businesses don't offer scale, competitive differentiation or high barriers to entry," he said.

Rocket's shares were down 5.2 percent by 1034 GMT, valuing the firm at 3.7 billion euros, well shy of the 5.3 billion euros valuation Rocket put on its portfolio at April 30.

The stock is down 25 percent this year after major investor Kinnevik slashed the valuation for its fashion sites by two thirds in April, prompting questions about the worth of the other start-ups.

On Tuesday Rocket highlighted improvements towards profitability at Middle East fashion site Namshi and furniture site Westwing, but admitted that losses widened at ingredients delivery firm HelloFresh - its biggest investment - due to spending on marketing and warehouses.

It did not give figures for losses at its second-biggest holding Delivery Hero, although sales rose 91 percent.

Chief Executive Oliver Samwer told a conference call for analysts that HelloFresh should narrow its losses this year and has enough cash to get it through to breakeven point.

He added that HelloFresh, which pulled plans for an initial public offering at the last minute last year, was still a candidate for a possible flotation, but said listing any of its start-ups was very unlikely this year.

Revenue dropped 37 percent at African general merchandise retailer Jumia and 51 percent at Latin American site Linio, hit by weak currencies as well as a shift from selling their own inventory to becoming commission-based marketplaces.

While still upbeat on Jumia, Samwer said Rocket's investment in Linio was limited and it was considering a possible sale.

($1 = 0.8958 euros)

(Additional reporting by Harro ten Wolde in Frankfurt; Editing by Greg Mahlich)