Rocket Declines as Fashion Unit Raises Cash at Lower Value

  • Value of investor's Global Fashion Group drops to $1.1 billion
  • Unit includes fashion retailers Zalora, Dafiti, Lamoda, Namshi

Rocket Internet SE fell 14 percent in Frankfurt after a funding round by the startup investor’s Global Fashion Group valued the online retailer at less than half of what it was worth a year ago.

Rocket, which owns about 23 percent 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 percent of the group, lost 3 percent in Stockholm.

Competition in the online fashion business is heating up, with the likes of Zalando SE and Asos Plc seeking to boost sales and profit while warding off competitors including Inc., whose Amazon Fashion site is expanding in Europe. Global Fashion Group is raising at least 300 million euros 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 Chief Executive Officer 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.”

Rocket declined to 23.02 euros at the close of Frankfurt trading, the steepest one-day drop since Jan. 15. Kinnevik fell to 248 kronor in Stockholm.

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 e-mailed 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, Chief Executive Officer 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 e-mailed note.

Global Fashion Group increased sales about 50 percent 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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