Tech

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

Writing about Rocket Internet sometimes feels like assembling a puzzle in the dark. Investors deciding whether to back the German start-up incubator will wish they could find the light switch too.

A French tech publication called le Journal du Net seemed to have found a missing piece of the jigsaw last week. It published a story that included slides of undisclosed and bullish financial projections for HelloFresh, a meal kit start-up backed by Rocket Internet that competes with Blue Apron in the U.S. The slides appeared to show it would more than double revenue this year, turn profitable on an adjusted Ebitda basis next year, and hit a 15 percent margin on the same basis in 2018.

Freshen Up
Rocket Internet's Hello Fresh is growing sales rapidly, while Ebitda losses have narrowed.
Source: Company reports

Berenberg analyst Sarah Simon then published a note on Tuesday that analyzed those leaked figures and concluded they implied a Hello Fresh valuation higher than the 2.6 billion euros ($2.9 billion) disclosed by Rocket in September. This matters because HelloFresh is the second-biggest holding in Rocket's portfolio and could be a candidate for an IPO in the next year or so. Understanding its health -- along with that of take-out service Delivery Hero, in which Rocket owns a 37 percent stake -- is central to any calculation of Rocket's valuation.

With the already profitable Blue Apron preparing an IPO that may be valued at about $3 billion, the added detail should be good news for Rocket's big bet on food tech. The meal-in-a-box business model is still new, and who knows how it'll fare as people's eating habits change. Already someone who doesn't feel like cooking after work has a dizzying array of options from takeout delivery apps such as Just Eat, GrubHub and UberEats.

Yet the leaked numbers were pretty positive, yes? Especially for Rocket, whose shares have languished because people really can't get a handle on what its assets are worth.

Well, not quite. A HelloFresh spokeswoman told me that the slides published by the French website were incorrect and did not correspond to the start-up's business plan. When I asked Rocket for comment, they refused to say anything about the financial projections or anything else about HelloFresh.

Huh?

Rocket is the majority owner of HelloFresh with a 56 percent stake; it knows if those slides are right. The numbers are in the market, and a respected bank has issued a note republishing them in whole. Meanwhile, Rocket's shares climbed as much as 4 percent in the hours after the note came out even as European markets traded lower, showing that at least some investors thought the information was credible.

Betting Against
Short sellers see Rocket Internet as an appealing target, although the ranks of those betting against the shares have thinned since earlier this year
Source: Markit

Why pick on Rocket? Listed companies are obliged to release reliable and up-to-date information to shareholders. Rocket already suffers from an awkward business model that blends elements of a listed venture capital fund and a tech company. It issues limited financial metrics for its portfolio and sometimes emphasizes strange ones such as order numbers, customers, or delivery riders.

Then there's the question of how Rocket calculates its "last portfolio value" for its biggest start-ups. The LPVs are updated rarely and unpredictably, usually after funding rounds. This all leaves great gaps in our ability to gauge what's going on inside Rocket, although co-investor Kinnevik sometimes helps.

All this explains why the shares have halved in value since their 2014 IPO. About 25 percent of shares are out on loan to people betting they will fall, one of the highest rates in Europe. When a leak like this occurs, good communication and clear disclosure is needed. Rocket just leaves you groping in the dark.

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

To contact the author of this story:
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net