The mys­te­rious ways of Eu­ro­pe‘s big­gest In­ter­net star­t­up, by Te­rence Roth.

Handelsblatt Global Edition Magazine - - Table Of Contents - BY TE­RENCE ROTH

Eu­ro­pe’s big­gest In­ter­net com­pa­ny wants to reach th­ree-quar­ters of the world’s mo­bi­le pho­nes be­fo­re it runs out of cash.

Two ye­ars ago, Ro­cket In­ter­net loo­ked pri­med to go stra­to­s­phe­ric. Eu­ro­pe’s e-com­mer­ce an­s­wer to Ali­ba­ba and Ama­zon had al­re­a­dy crea­ted Ger­ma­ny’s eBay, sold off the Za­lan­do fa­shion re­tailer and cap­tu­red Asia’s on­li­ne fast-food mar­kets. The pro­ceeds from its €1.6 bil­li­on stock lis­ting in Oc­to­ber 2014 we­re to pro­vi­de the next big boost. Sin­ce then Ro­cket’s suc­ces­ses ha­ve sput­te­red amid fe­ars of a new In­ter­net bub­b­le, lea­ving the com­pa­ny scra­ping for its next big de­al.

Ro­cket In­ter­net be­gan as a start-up that plays mid­wi­fe to ot­her on­li­ne start-ups, ac­ce­le­ra­ting the spre­ad of e-com­mer­ce world­wi­de by re­pli­ca­ting the on­li­ne suc­cess of Ame­ri­ca’s in­ter­net gi­ants. It’s al­so a cau­tio­na­ry ta­le about mis­jud­ging ca­pri­cious fi­nan­ci­al mar­kets and ad­jus­ting ma­nage­ment prac­tices in the pro­gres­si­on from a small Ger­man star­t­up to a spraw­ling con­cern with 30,000 em­ployees world­wi­de. Foun­ded in in 2007 by CEO Oli­ver Sam­wer and his two bro­thers Marc and Alex­an­der, the com­pa­ny has laun­ched mo­re than 100 In­ter­net re­tail en­ti­ties across 110 coun­tries, ma­king the trio bil­lio­nai­res.

Oli­ver Sam­wer, who li­kes to say he ma­kes th­ree mis­ta­kes a day but al­so fi­ve good de­ci­si­ons, be­gan his as­cent to the top of Eu­ro­pe’s In­ter­net pi­le in 1999 when he and his bro­thers star­ted a Ger­man in­ter­net auction si­te at a ti­me when Ebay had yet to ful­ly en­ter the Ger­man mar­ket. They be­gan by auc­tio­n­ing off so­me of their own pos­ses­si­ons and the pro­ject took off, attrac­ting the at­ten­ti­on of the fast-ex­pan­ding U.S. re­tailer. Wi­t­hin months, eBay bought the Sam­wers’ plat­form to be­co­me the nu­cleus of its own Ger­man-lan­gua­ge eBay si­te.

To­day, Ro­cket In­ter­net is Eu­ro­pe’s big­gest e-com­mer­ce com­pa­ny with a de­cla­red aim to launch on­li­ne ser­vices that can reach three­quar­ters of the world’s mo­bi­le pho­nes. Its bu­si­ness mo­del fo­cu­ses on “iden­ti­fy­ing and buil­ding pro­ven In­ter­net bu­si­ness mo­dels for new mar­kets.”“Pro­ven” he­re me­ans the start-up emer­ging from Ro­cket In­ter­net’s

Oli­ver Sam­wer, CEO of Ber­lin-ba­sed Ro­cket In­ter­net, is Eu­ro­pe‘s most suc­cess­ful on­li­ne en­tre­pre­neur.

sta­ble are es­sen­ti­al­ly co­pies of es­ta­blis­hed sites li­ke Airb­nb, eHar­mo­ny, Pin­te­rest and others. The prac­tice has ear­ned the com­pa­ny a re­pu­ta­ti­on as the clo­ne fac­to­ry of the glo­bal In­ter­net. For a whi­le wi­t­hin the in­dus­try, Ber­lin had the du­bious cachet of being the In­ter­net’s Chi­na, a place whe­re others’ pro­ducts we­re co­pied wi­thout as­king. Ro­cket In­ter­net de­fends the prac­tice, se­eing its ro­le as start-up buil­ders for un­tap­ped mar­kets and not an ar­chi­tect of new bu­si­ness mo­dels.

Ahead of the com­pa­ny’s 2014 IPO, the fu­ture loo­ked bright. Ro­cket had just co­me off the 2013 sa­le of the hu­ge­ly po­pu­lar Za­lan­do on­li­ne clo­thing sto­re, pat­ter­ned af­ter the U.S. on­li­ne fa­shion re­tailer Zap­pos. When Za­lan­do went pu­b­lic a ye­ar la­ter, it rai­sed €605 mil­li­on. Sin­ce then its sha­res ha­ve ri­sen by ne­ar­ly 30 per­cent, va­luing Za­lan­do at €6.9 bil­li­on. By con­trast, Ro­cket In­ter­net’s own stock pri­ce fell 50 per­cent over the sa­me pe­ri­od, sla­shing its mar­ket cap to €3.5 bil­li­on from €6.7 bil­li­on at its Oc­to­ber 2014 launch. (For sca­le, Ama­zon and Ali­ba­ba ha­ve mar­ket caps of $252 bil­li­on and $163 bil­li­on, re­spec­tive­ly.)

Last ye­ar Ro­cket In­ter­net’s mo­men­tum stal­led as big in­vest­ments con­ti­nued to post los­ses. In De­cem­ber, the group re­por­ted an ope­ra­ting loss of €629 mil­li­on at its big­gest star­t­up in­vest­ments in the first ni­ne months of 2015, de­spi­te re­ve­nues mo­re than dou­bling.

The one initi­al pu­b­lic of­fe­ring plan­ned last ye­ar, the group’s Hel­loF­resh on­li­ne gro­ce­ry ser­vice, was post­po­ned in­de­fi­ni­te­ly, re­por­ted­ly be­cau­se Ro­cket In­ter­net saw the mar­ket as too soft. Hel­loF­resh is wor­king to bur­nish its image by si­gning up Bri­tish ce­le­bri­ty chef Ja­mie Oli­ver to add his re­ci­pes to the si­te’s me­nu. Al­so roo­ted to the launch­pad are on­li­ne start-ups li­ke fur­ni­tu­re sto­re Ho­me24 and the fast-food plat­form De­li­very He­ro. In Fe­bru­ary, Ro­cket In­ter­net ga­ve up on its me­al de­li­very ser­vices in Ita­ly, Spain, Me­xi­co and Bra­zil, sel­ling its sub­si­dia­ries the­re to UK ri­val Jus­tEat for €125 mil­li­on.

The set­backs ha­ve shaken faith that the start-up’s sharp re­ve­nue growth was attrac­tive to in­ves­tors even if the com­pa­ny still hasn’t pro­ven it can ever ma­ke a pro­fit. The sa­me ques­ti­on hangs over ma­ny big-na­me In­ter­net start-ups the­se days, spur­ring talk of ano­ther bub­b­le in In­ter­net stocks.“The days when

For a whi­le, Ber­lin had the du­bious cachet of being the In­ter­net’s Chi­na, a place whe­re others’ pro­ducts we­re co­pied.

pu­re growth pro­vi­ded for eu­pho­ria are over,” says Andre­as Fei­den, ow­ner of con­sul­tan­cy Fin­no­va­tiv. “Qua­li­ty and get­ting in­to the black play a much big­ger ro­le with in­ves­tors now.”

Oli­ver Sam­wer took on his cri­tics in a Han­dels­blatt in­ter­view, ar­guing that it’s no sur­pri­se that In­ter­net com­pa­nies ta­ke up to ni­ne ye­ars to turn a pro­fit. “We’re not go­ing to let them dri­ve us cra­zy, even if so­me me­dia ha­ve ac­cu­sed us of pret­ty much ever­y­thing you can ima­gi­ne in the re­cent past,” Sam­wer said. “We be­lie­ve in the cour­se we’re ta­king and will con­ti­nue with it.”

The com­pa­ny’s fledgling plat­forms will be­gin turning the cor­ner in 2016 with the next two ye­ars sho­w­ing even mo­re pro­mi­se, Sam­wer in­sists, pre­dic­ting that a new IPO by one of Ro­cket’s ma­ny start-ups can be ex­pec­ted this ye­ar. Nor does the com­pa­ny face any li­qui­di­ty pro­blems. It still has € 1.7 bil­li­on in cash and has just laun­ched a new $420 mil­li­on fund for new pro­jects, the lar­gest In­ter­net in­vest­ment fund in Eu­ro­pe. Sam­wer al­so isn’t fa­zed by his com­pa­ny’s stri­cken sha­re pri­ce. “I ha­ve ex­pe­ri­en­ced all the highs and lows; 50 per­cent up and 50 per­cent down,” he says.

Among Ro­cket In­ter­net’s de­fen­ders is Christian Mie­le, a Ger­man ven­ture ca­pi­tal in­ves­tor who knows Sam­wer per­so­nal­ly.“To sur­vi­ve in to­day’s glo­bal mar­ket, ma­ny firms using in­ves­tors’ mo­ney post los­ses for se­veral ye­ars be­fo­re they be­co­me pro­fi­ta­ble,” Mie­le wro­te in a cont­ri­bu­ti­on to Han­dels­blatt ear­ly this ye­ar. Me­anw­hi­le, he wro­te, the com­pa­ny is ser­ving as the flagship for Eu­ro­pean e-com­mer­ce and pro­vi­ding ser­vices in pre­vious­ly un­der-ser­ved mar­kets, as well as ge­ne­ra­ting thousands of jobs world­wi­de.

Still, the­re are gro­wing out­ward signs of ten­si­on in­si­de the com­pa­ny. A num­ber of se­ni­or ma­na­gers ha­ve al­re­a­dy bai­led. By the end of last ye­ar, the com­pa­ny had lost its de­pu­ty fi­nan­ce chief and its heads of hu­man re­sour­ces, tech­no­lo­gy and pu­b­lic re­la­ti­ons. In De­cem­ber, the com­pa­ny lost its su­per­vi­so­ry bo­ard chair­man Lo­ren­zo Gra­bau, who heads the Swe­dish ven­ture ca­pi­tal firm Kin­ne­vik. Ro­cket In­ter­net ex­plai­ned at the ti­me that Gra­bau’s re­pla­ce­ment with a new bo­ard di­rec­tor had long be­en plan­ned. But the sud­den string of de­par­tu­res and fi­nan­ci­al set­backs was enough to ac­ce­le­ra­te the sell-off in Ro­cket In­ter­net’s sha­res. In­si­ders speak of un­e­a­si­ness over how the com­pa­ny is run af­ter the ra­pid growth spurt sin­ce its foun­ding. The com­pa­ny, says one for­mer em­ployee who does not want to be na­med, is run “li­ke a snack shack, foun­ding one start-up af­ter ano­ther,” for­get­ting it is no lon­ger a start-up its­elf.

So­me ex­perts ha­ve ques­tio­ned a sur­pri­se €600 mil­li­on ca­pi­tal in­crea­se in ear­ly 2015. Co­m­ing on­ly a few months af­ter Ro­cket In­ter­net’s IPO, it did litt­le to warm in­ves­tors’

hearts. “Ro­cket has suf­fe­red a col­lap­se of con­fi­dence on the ca­pi­tal mar­ket,” a per­son fa­mi­li­ar with the com­pa­ny says. Ana­lysts al­so com­plain of ha­ving trou­ble with the com­pa­ny’s opaque struc­tu­re and li­mi­ted fi­nan­ci­al da­ta, ma­king it dif­fi­cult to as­sess the com­pa­ny’s va­lue. Ro­cket In­ter­net is a so-cal­led “light lis­ting” on the Frank­furt stock ex­ch­an­ge, which me­ans it does not ha­ve to pro­vi­de the sa­me kind of fi­nan­ci­al in­for­ma­ti­on to in­ves­tors as re­gu­lar lis­ted com­pa­nies.

At an in­ves­tors’ mee­ting in De­cem­ber, Sam­wer and his chief fi­nan­ci­al of­fi­cer Pe­ter Kim­pel sought to al­lay the­se con­cerns, say­ing that any fu­ture cash calls are far off, and that th­ree of its com­pa­nies would break even by the fourth quar­ter of 2017. The mar­ket wasn’t im­pres­sed and Ro­cket In­ter­net’s stock clo­sed the day with ano­ther 3 per­cent drop. As mar­kets wait to see if Ro­cket In­ter­net can snap out of its string of bad luck, ana­lysts say the com­pa­ny could help bols­ter con­fi­dence by con­ver-ting to a full stock-mar­ket lis­ting that re­qui­res a hig­her standard of fi­nan­ci­al dis­clo­sure. Un­til then, in­ves­tors will ha­ve to ta­ke Oli­ver Sam­wer’s word that all sys­tems are go at Ro­cket.

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