Rocket Internet boosts sales, but operating losses grow

April 14, 2016 01:04 PM

(Bloomberg)—Rocket Internet SE, Europe’s biggest startup factory, reported a loss of 197.8 million euros ($222 million) for last year.

While Rocket-backed companies continued to increase sales, operating losses widened at several of them, including at food delivery startup HelloFresh and e-commerce site Lazada, which drew an investment from Alibaba Group Holding Ltd. this week. Rocket had net income of about 429 million euros the previous year, according to the Berlin-based company’s statement Thursday.

The revenue growth “does not mask that many off the underlying businesses have seen a huge ramp in costs,” Neil Campling, an analyst at Aviate Global LLP, said in a research note.

Shares fell 10% to 26.09 euros at 11:42 a.m. local time after dropping as much as 12%, the biggest intraday decline since Jan. 15.

The company will show “significant improvements in profitability” at its startups this year and next, CEO Oliver Samwer said on a call with reporters. Rocket still seeks to bring companies public but will do so only if markets are positive, he said.

Rocket is under pressure to prove its investments are paying off after showing little progress with reducing losses. That’s because most of his startups needed major cash infusions to scale them, Samwer said. HelloFresh, which added warehouse centers in the U.S. and quadrupled the number of servings it delivered to about 50 million last year, will expand to the U.K. and "continue to grow very fast,” Samwer told investors at an event in London.

Profitability steps

Rocket-backed delivery service Foodpanda already has countries where it’s breaking even, and furniture seller Westwing and fashion retailer Lamoda, No. 136 in the Internet Retailer 2015 Europe 500, will continue to move toward profitability, Samwer said. Rocket expects its African business, which got investments from Goldman Sachs and Axa SA, to become "very successful" in the coming years, chief financial officer Peter Kimpel told investors.

As part of the Alibaba deal, Rocket is selling a 9.1% stake in Lazada and keeping an 8.8% slice. Lazada, No. 159 in the Internet Retailer 2016 Asia 500 with an estimated $116.96 billion in 2015 web sales, will get a significant boost from Alibaba’s "hundreds of thousands” of suppliers in China, Samwer said.

If Rocket doubts that a startup can succeed, it will consider exiting, Samwer said. "If something doesn’t work, don’t wait long,” he said. "But the point is: All those tries cost us very little.”




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