Rocket Internet slashes the valuation of Global Fashion Group

April 27, 2016 12:26 PM

(Bloomberg)—Rocket Internet SE has cut the valuation of online retailer Global Fashion Group by more than half compared with what it was worth a year ago.

Rocket, which owns about 23% of Global Fashion Group, said the unit was valued at 1 billion euros ($1.1 billion), compared with an implied valuation of 2.8 billion euros a year ago. Sweden’s Investment AB Kinnevik, which owns 26% of the e-retail group, lost 3% in Stockholm.

Competition in the online fashion business is heating up, with the likes of Zalando SE, No. 8 in the Internet Retailer 2015 Europe 500, and ASOS Plc (No. 17), seeking to boost sales and profit while warding off competitors including Inc., No. 1 in the Internet Retailer 2016 Top 500 Guide, whose Amazon Fashion site is expanding in Europe. Global Fashion Group is raising at least 300 million euros ($339.6 million) in the latest round, with Rocket investing as much as 100 million euros and Kinnevik contributing 200 million euros.

“We’re excellently positioned in countries and regions where you see a massive shift from offline to online,” Global Fashion Group CEO Romain Voog said in a phone interview. He said he isn’t worried about the valuation change as peer multiples regularly fluctuate and Global Fashion Group is well-funded. “We want to have a very clear path on becoming a profitable company.”

Under pressure

Global Fashion Group combines six retailers modeled after European incumbent Zalando—Dafiti in South America, India’s Jabong, Namshi in the Middle East, Russia’s Lamoda, Zalora in Southeast Asia and The Iconic in Australia. Global Fashion Group will use the funding to invest in brands, mobile technology and last-mile delivery to grow sales in its existing markets and further improve profitability, Voog said.

The stark decrease in the valuation of Global Fashion Group is reason for concern, compounded by weak business momentum, opaque funding structures and a rising risk of further funding rounds at lower valuations, said Neil Campling, an analyst at Aviate Global LLP with a sell rating on the stock. Campling said in an emailed note he struggles to see how Rocket’s estimates for its startups’ valuations “can continue at the high growths of the past.”

Rocket is under pressure to prove its investments are paying off after showing little progress with reducing losses in several of its startups last year. That’s because many of them were still in the growth phase and needed investments, CEO Oliver Samwer said earlier this month, vowing to show "significant" improvements in profitability this year and next.

Deutsche Bank AG on Wednesday initiated coverage of Rocket, rating the stock “buy,” citing expectations that profitability will improve. “Investors seem to negate Rocket Internet’s ability to exit holdings at favorable valuations (e.g. Lazada) and launch successful new ventures,” analyst Benjamin Kohnke said in an emailed note.

Global Fashion Group increased sales about 50% to 930 million euros last year and narrowed its loss margin by more than 10 percentage points in the first quarter, based on adjusted earnings before interest, taxes, depreciation and amortization, Voog said.




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