Rocket Falls on Debut After Biggest German IPO Since 2007

Rocket Internet AG Chief Executive Officer Oliver Samwer
The revenue will allow Rocket Internet AG Chief Executive Officer Oliver Samwer to expand in markets such as Latin America and Asia. Source: Rocket Internet AG via Bloomberg

Rocket Internet AG fell 13 percent on its first day of trading in Frankfurt, failing to replicate investor enthusiasm for e-commerce stocks sparked by Alibaba Group Holding Ltd.

The shares closed at 37 euros, valuing the Berlin-based startup investor at 5.7 billion euros ($7.2 billion). Zalando SE -- another company backed by Rocket founders Marc, Oliver and Alexander Samwer, which had its trading debut yesterday -- lost 12 percent.

Zalando and Rocket’s performances “show the market might be running out of patience for highly-priced deals and is becoming much more selective,” said Lex Van Dam, a fund manager at Hampstead Capital LLP in London. “Banks keep pushing stocks until the market can’t take it anymore.”

Rocket, which became famous for cloning businesses from Groupon Inc. to Airbnb Inc., yesterday priced its 1.6 billion-euro share sale at the top end of its range, saying that demand for the stock outstripped supply by more than 10 times. Rocket sold the shares at 42.50 euros apiece in the biggest initial public offering in Germany since 2007. The sale turned the Samwer brothers into billionaires and provides Rocket with funds to push deeper into emerging markets.

Alibaba, the Chinese e-commerce giant, rose 38 percent in its trading debut in New York Sept. 19 after what was the largest IPO of all time. Stocks fell around the world today as details of additional central-bank stimulus disappointed investors.

Doubling Target

Last week, Rocket almost doubled its target for proceeds and then advanced the date of its listing after winning commitments to buy shares from JPMorgan Chase & Co. and Scotland’s Baillie Gifford & Co.

“It looks like that raised a maximum of cash as they are not sure they could do it again in the future,” said Mustapha Raddi, a managing director at Atlas Capital Markets near Paris.

Rocket and Zalando marked the busiest week in German technology stock sales in more than a decade. At the end of its Frankfurt debut yesterday, Zalando gave up all of its 14 percent gains. Its drop today gave the online apparel retailer a market value of 4.7 billion euros.

IPOs in Europe this year gained an average of 11 percent from their listing to the first week, according to data compiled by Bloomberg.

Understanding Digital

Rocket’s sale proceeds, including the over-allotment option, would exceed the 1.45 billion euros from phone company Telefonica Deutschland Holding AG’s 2012 IPO, according to data compiled by Bloomberg. Auto supplier Tognum AG raised 2 billion euros in 2007.

The revenue will allow Chief Executive Officer Oliver Samwer to expand in markets such as Latin America and Asia and take a higher stake in its ventures. He said last month online and mobile commerce have only started to gain steam since 2007 in the emerging markets it targets.

“Oliver is excellent in giving investors the feeling that he and his brothers understand the digital business,” Joel Kaczmarek, author of Samwer biography “The Godfathers of the Internet,” said in an e-mail. “His vision of conquering the different developing Internet markets seems actually very plausible and triggers the interests of investors that do not want to miss out on those opportunities.”

EHarmony, Pinterest

The brothers began their careers as Internet entrepreneurs in 1999 by cloning EBay Inc.’s business for the German market and subsequently selling it to the U.S. company.

Rocket has also duplicated sites such as those of EHarmony Inc. and Pinterest Inc. Rocket typically starts the companies, hires staff and provides initial marketing, design and management know-how.

Ten Rocket e-commerce startups for which shareholder Investment AB Kinnevik disclosed earnings -- including Zalando clones Lamoda in Russia and Dafiti in Brazil, as well as houseware vendor Westwing -- had an aggregate operating loss of 432 million euros last year on sales of 743 million euros, according to data compiled by Bloomberg.

The stake of Rocket’s controlling shareholder, the Samwer brothers’ Global Founders Fund, falls to 39.8 percent from 52 percent, assuming the over-allotment option is fully exercised.

Companies raised $64.3 billion in the third quarter, data compiled by Bloomberg show. Tele Columbus AG, Germany’s third-largest cable operator, this week announced plans to raise at least 300 million euros in an IPO.

Berenberg Bank, JPMorgan and Morgan Stanley arranged Rocket’s stock sale, with Bank of America Corp.’s Merrill Lynch, Citigroup Inc. and UBS AG as joint bookrunners.

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