Tech

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Elon Musk might want to give fellow billionaire Oliver Samwer a call to commiserate. Both are having problems with rockets.

Hours after Musk's SpaceX lost a rocket in a launchpad fire on Thursday, Samwer's Rocket Internet warned it will make a first-half loss of 617 million euros.

The German startup factory had to write down the value of one of its biggest investments -- Global Fashion Group, a constellation of e-commerce sites in Asia and Africa. That wiped 383 million euros off earnings.

On Friday, Rocket's shares tumbled almost 10 percent. But unlike Musk's accident, the writedown shouldn't have come as a total surprise to investors.

Rocket had already reduced Global Fashion's valuation to 1 billion euros in its April update of its portfolio estimates back. Given the previous valuation was a lofty 3 billion euros, simple math would have suggested Rocket had a problem.

This week's announcement is a reminder to investors that the valuations Rockets ascribes to its holdings can turn out to be, well, optimistic. Kinnevik, a Swedish investment fund that also holds a stake in Global Fashion Group, had already put a lower valuation on the business. 

Different Perspective
Rocket Internet and Kinnevik put different valuations on the startups they both have stakes in
Source: Company filings
*Value before 27th April funding round, which revised it lower. Data as of end 2015 for Kinnevik, March 31 for Rocket

Few dispute that Samwer is a canny entrepreneur who will probably create value out of at least some of the hundreds of start-ups he's backed. But with Rocket's limited disclosure of its investments' financial metrics, it's difficult for shareholders to compare them with publicly traded peers and compute their own valuation. Rocket requires its shareholders to take a leap into the unknown. That's why the short interest remains stubbornly high at 21 percent and the shares are down about 60 percent since their initial public offering.

Flying Bears
While bets against it have declined, short interest on Rocket Internet remains stubbornly high
Source: Markit

If Rocket is to start dispelling investor concerns, it will need to make good on its pledge to take one of its investments public before the end of March 2017. That goal -- though subject to market conditions -- still stands and will be crucial to proving it can reap profit from its investments in web start-ups.

Gravity
The stock took off like a rocket in the first quarter before crashing to earth, weighed down by its payload of underperforming portfolio companies
Source: Bloomberg

But it's hard to see which of Rockets holdings is mature enough to attempt an IPO soon. Global Fashion Group, with its heavy exposure to Russia and Brazil, two depressed markets, can't be considered. The other two possibilities are in the food delivery industry: Hello Fresh and Delivery Hero. Both face intense competition and lingering questions about when they will reach profitability. If an IPO is impossible, Rocket may yet try to find a buyer for some of its holdings -- as it did with its stake e-commerce company Lazada.

Musk didn't just lose a rocket in the crash, he also lost the confidence of some in his ability to deliver on low-cost satellite launches. Samwer faces a similar dilemma how to regain investors' faith.

No one ever said riding rockets was easy.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Leila Abboud in Paris at labboud@bloomberg.net
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net