Germany’s Rocket falls back to earth

When German e-commerce investor Rocket Internet launched Jumia in 2012 as a would-be African Amazon, it was optimistic that a rapidly expanding middle class would quickly shift from street markets to shopping online.

Four years on, falling sales for sites like Jumia and slower growth from Nigeria to Russia and Brazil is casting doubt on Rocket Internet’s ambition to become the world’s biggest Internet company outside the United States and China.

Jumia made a loss of 17 million euros ($18.8 million) in the first three months of 2016 on sales that fell more than a third. The devaluation of Nigeria’s naira last week is a new blow for Jumia, which now operates in more than 20 countries in Africa.

Revenue growth has also slowed at most of Rocket Internet’s other 11 leading start-ups, ranging from furniture e-commerce and food delivery in Europe to online fashion in markets from India to Latin America and West Asia.

That is the consequence of Rocket’s shift to rein in spending on marketing and logistics as it seeks to stem losses which it said peaked at 1 billion euros in 2015.

As a result, shareholders have cast doubt on the valuation Rocket has put on its portfolio and questioned the strategy of sending business school graduates to set up 150 start-ups in more than 110 countries in just a few years.

Exclusive interviews with shareholders reveal growing scepticism about Rocket’s sprawling empire as emerging markets sour and technology stocks cool. Its share price has fallen 39 per cent in 2016.

“People have started to question whether the company portfolio is really as good as we first thought,” said a top 20 shareholder, who declined to be named as they expect to trade stock. “A lot of trust has been destroyed over the last 12 months.”

Founded in Berlin in 2007 by brothers Oliver, Alexander and Marc Samwer, Rocket Internet aims to replicate the business models of Amazon, China’s Alibaba and ride service Uber in new markets.

With few other tech companies listed in Europe, investors jumped at the opportunity to gain exposure to an array of fast-growing businesses when Rocket went public in 2014, pushing the stock up by more than 50 percent in the first few months. However, the stock has been on a downward trajectory since peaking in February 2015 after it surprised investors with a new capital hike and shifted strategy to invest in the food delivery business in developed markets.

The latest share price tumble started in April when Sweden’s Kinnevik, Rocket’s second-biggest shareholder after the Samwer brothers, slashed the valuation for its emerging market fashion websites by two thirds.

That unsettled investors, especially after Kinnevik said its representatives were stepping down from the board, citing potential conflicts of interest over future investments.