As its mission claims, startup eCommerce incubator Rocket Internet aims to "become the world's largest Internet platform outside the U.S. and China." But for now, the Berlin-based company that has fueled dozens of ventures seems lightyears away from that mission, as the company has faced its share of bumpy rides since the company's IPO price took off on October 2.
It seemed like a smooth start for Rocket Internet after the company posted a valuation of $8.4 billion (6.7 billion euros). It set its IPO at the top of its price range at $58.8 per share (42.5 euros). That was Germany's biggest IPO since 2007, Bloomberg reported, which priced the 42 billion sale "at the top end of its range and turning founders Samwer brothers into billionaires."
But as quickly as Rocket Internet launched those figures, its stock saw an immediate 10 percent stock drop in what was called a "long-awaited offering that could have big implications for the European tech scene." The company's concept and strategy may have something to do with how it it was received during its IPO. After the hype, reality set in.
Rocket Internet shares also lowered at the start of November after briefly rising from a steep slump, The Wall Street Journal reported, a trend that continued since its first days of trading. The shares traded below the issue price for most of the weeks following the IPO, putting the company's gross proceeds from the IPO around $1.74 billion.
The post-IPO results may not have delivered what the Samwer brothers wanted, but they did become billionaires. If nothing else, that's helped project investments into more companies. Prior to to the IPO, CEO Oliver Samwer told investors that "Alibaba is the model." Well, just like Alibaba founder Jack Ma, the brothers did get rich with the IPO, but they didn't show the same buzz following the release. But Rocket Internet's direction shows a much different path than Alibaba (not to mention was nowhere near its $25 billion IPO).
Here's how the two differ the most, according to the Economist:
"Alibaba strives to innovate in the online services that it provides to businesses and consumers, mostly in China. Rocket looks for internet-business ideas that are working in one country and applies them in others, especially emerging markets," the article reported. "Rocket used to sell its clones to the companies it had imitated, such as eBay and Groupon. But it now plans to hold on to its creations—in places from Brazil to the Philippines—until they turn a profit. The target markets have young, growing middle classes and high smartphone penetration but weak physical-retailing infrastructure."
Rocket also has a goal "to turn out 80 percent of its new business in less than 100 days." Quite different than Alibaba, which is more about long-term strategic planning. The Economist also broke out a few key facts about the company's strategy: "Rocket’s prospectus calls 11 of its companies proven winners. (It offers little detail on 50-plus others.) These 11 have expanded explosively: for the eight that had a full year’s trading in 2012 to compare with, their revenue growth in 2013 was between 50 percent and 633 percent. But like most Internet companies at their stage of development, all 11 still lose money."
Top performers for Rocket include: "Russian fashion site Lamoda and Indian online store Jabong, which saw first-half revenue grow 112 percent and 187 percent, respectively." Rocket has also seen success in Asia with companies like Zalora (clothing), where it saw a 44 percent increase in a year, Lazada (online marketplace), with a sales boost of 202 percent and Foodpanda, which saw a 429 percent since 2013.
Still, some of the company's most successful investments have been with companies like Westwing, which sells home furnishings. But that, too, operated at a loss. Rocket Internet raised $150 million for the Nigerian-based eCommerce business Jumia, but losses still overpowered sales. But that may not be a big deal for some investors.
"For Rocket boosters, this is no worry: Amazon, an e-commerce titan, has long sacrificed profits for growth," the Economist reported. Rocket has seen a reported $4 billion from investors, including $2 billion from Russian billionaire Leonard Blavatnik, Swedish investment firm Kinnevik, and J.P. Morgan.
Kinnevik, one of its largest investors, broke out some key demographics about how Rocket works and who is using its companies. According to the investor: Rocket's footprint covers over 1 billion Internet users and 3 billion mobile users across five regions Europe, Russia, Asia-Pacific excluding Japan and China, Latin America and Middle East & Africa). Its Internet ventures are said to have counted 4.7 billion visits to their sites globally since 2011.
Growing eCommerce businesses come with risk and cost, and weighing the risk against the cost is the name of the game. Rapid growth can lead to growing pains, the Economist article noted, citing Rocket's philosophy: "We don't make the same mistake twice." It's diversification may help with that.
"And doing business in so many different countries makes Rocket a kind of diversified bet in itself," the article also noted. "This is one reason its backers include some rather conservative investment institutions. It is testimony to the trust many put in Rocket’s managers that its IPO order book was full well before the first trading day."
Still, there are always critics.
Peter Thiel, a German-born Silicon Valley investor, has been critical about Rocket because "its exports of proven business models are much more plays on globalization than technology," saying “technology is more important.” The Economist's perspective? It's not about either.
"Rocket is a bet neither on globalization nor technology. It is a bet on repeatability."
Oliver Samwer responded to critics with his own philosophy: “In the internet industry, there are Einsteins and there are Bob the Builders. I’m a Bob the Builder.” He also doesn't have the modesty of Alibaba's Ma as Samwer once called himself "the most aggressive guy on the internet” and said he would “die to win."
Rocket Internet started in 2007 by brothers Alexander, Marc and Oliver. The brothers' recognition gained traction publicly as they had a presence in investments with major players like Groupon, eBay, Facebook and LinkedIn. Modeled after U.S. companies, the Internet technology company aims to duplicate international versions of startups like Groupon or Airbnb. That's where the problem in the marketplace sometimes ignites. Investors don't always like to jump on the bandwagon of companies who build their model directly from another company. But Oliver sees it differently.
‘‘If there’s a clear business model that is proven to work, we will look at it,’’ he said in an interview. ‘‘Every new company is like a speedboat, and we want them to become aircraft carriers.’’
Rocket also has its share of fans. And a book deal.
“Oliver is excellent in giving investors the feeling that he and his brothers understand the digital business,” Joel Kaczmarek, author of Samwer biography “The Godfathers of the Internet,” told Bloomberg. “His vision of conquering the different developing Internet markets seems actually very plausible and triggers the interests of investors that do not want to miss out on those opportunities.”
So why the dim start for Rocket Internet, particularly when early reports suggested a sunny outlook? The Economist gave some insight into what's unique about the Internet startup and why it faced challenges from the start. Even if its strategy involves making a "clone" of proven Internet businesses, there's still room for growth.
"There is no company quite like it. It is not a venture-capital firm, since it is much more hands-on and has a bigger stake in the startups it invests in. Nor is Rocket quite an “incubator” or “accelerator”, since it holds on to its young tech companies for longer and does much more than provide facilities and support.
One of the most recent partnerships announced by Rocket Internet is with Wirecard AG, a move that will allow Rocket's online companies to offer international payment acceptance with Wirecard AG's solutions for electronic payment transactions.
“In order to achieve [our mission], we need reliable and responsive partners who share the same drive and global approach as we do. That is why Wirecard is the perfect match for us as they react quickly to our needs and provide fast mobile and online-based payment solutions for the different markets we operate in," Oliver said.
So what's on deck for Rocket Internet? Another 10 startups set to launch in 205, which is on top of the three companies it expects to launch this year still. It's also looking to work with Facebook on advertising.
"Our opportunity is huge and our journey has just begun," Oliver said, confirming his confidence in the family company.