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.
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.
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.
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.
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