Rocket Internet Loss Widens Following Write-Downs – Wall Street Journal

Rocket Internet CEO Oliver Samwer pictured in June. The company is sticking to its midterm aim of making at least three startup companies in its portfolio profitable by the end of 2017.
ENLARGE

BERLIN— Rocket Internet SE,
RKET


-8.35
%




the German tech company that made a business out of cloning Web startups, said Friday that losses in the first half of 2016 drastically widened because of write-downs of its portfolio companies.

Rocket reported a January-to-June loss of €617 million, compared with €45.9 million in the same period in 2015, and its shares were down about 10% to €16.99 in mid-afternoon trading.

Founded in 2007 by three German brothers, Rocket has launched about 100 internet companies in 110 countries with 36,000 employees. From Rocket’s Berlin headquarters, employees monitor other tech startups around the world. They take the startup ideas they deem promising and launch copycat businesses in other countries. The companies sell products and services over the web, including food, furniture and cars.


In many respects, Rocket is a microcosm of the struggling global tech industry. Startups world-wide are facing declining valuations and questions about their viability. All of Rocket’s major portfolio companies are unprofitable.

Rocket acts like a central holding company that holds minority or majority stakes in its portfolio companies. In addition to reporting quarterly on its own financial performance, Rocket provides quarterly updates on the performance of several of its biggest portfolio companies. It plans to provide such details on Sept. 22.

Chief Executive Oliver Samwer, the second of the three brothers, has said his strategy is to have his startups spend and expand heavily for five-to-nine years before becoming profitable. Mr. Samwer said Friday that he expected that losses at major portfolio companies peaked in 2015, and that at least three major Rocket startups would turn profitable by the end of 2017.

“We remain committed to our goals,” he said.

The majority of the 2016 first-half loss came from Rocket’s write-down of one of its biggest startups, online retailer Global Fashion Group. Rocket said it lowered the valuation of GFG on its balance sheet, which was the main reason for the loss. Rocket holds a 20% stake in GFG, which contributed a loss of €383 million.

Rocket in April slashed GFG’s valuation from about €3 billion to about €1 billion, as GFG cited the share-price movement of similar companies, its continued unprofitability and its emerging-markets presence.

London-based GFG operates several brands, including Lamoda in Eastern Europe and Asia, Dafiti in South America and Namshi in the Middle East. In a typical sale, a moped-riding courier delivers clothes to a customer, who then tries on the items in his or her home while the courier waits. Customers then pay the courier by cash or credit card if they want to keep the apparel.

For the first half of 2016, Rocket also made “significant” write-downs and negative adjustments to other stakes in companies it owns, Chief Financial Officer Peter Kimpel said. He said these would be specified on Sept. 22.

Jefferies analyst James Lockyer said the company’s first-half loss is “not a complete surprise, but seeing the real financial impacts of Rocket’s valuation methodology should hammer it home.”

Write to Stu Woo at Stu.Woo@wsj.com and Friedrich Geiger at friedrich.geiger@wsj.com

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