Rocket Internet is gearing up for its upcoming results day on September 22 with a warning: its financials aren’t going to be pretty.
In an announcement, the German venture builder cautioned that it lost €617 million (nearly $690 million) across its portfolio of online businesses — which it rather ironically calls ‘Proven Winners’ — during the first half of this year. Rocket is putting the majority of the blame on the shoulders GFG — Global Fashion Group — the holding company that manages its collection of fashion-focused e-commerce businesses that are dotted across the globe.
GFG hasn’t had a good time of it lately, to put it mildly.
“GFG contributed negative EUR 383 million to the Rocket Internet’s first half year results. The result was further impacted by special items such as impairments, fair value adjustments and – to a lesser extent – positive special items,” the company said.
Wait, there’s more.
“As a result of deconsolidation effects, group revenues in the first half of 2016 decreased to EUR 29 million compared to EUR 71 million in first half of 2015,” it added.
Despite the negatives, Rocket chief Oliver Samwer expects “at least three of our selected portfolio companies to turn profitable by the end of 2017, and that the aggregate EBITDA losses of the selected portfolio companies will have peaked in 2015.”
This is clearly bad news, but those following GFG and Rocket generally won’t be too shocked by these admissions. The issues have been there to see in plain sight, and it isn’t just that Rocket’s share price has dropped by one-third in 2016.
The company — whose business stretches from Southeast Asia to the Middle East, Russia and beyond — raised a total of $365 million at a $1.1 billion valuation. That’s down massively from its $3.4 billion valuation in 2015.
As we reported at the time of the downround, GFG had shopped itself around the world with no success. Despite meeting with more than 90 investors, according to one company insider, its fresh capital came from very familiar pockets: those of Rocket Internet and Kinnevik, its close ally and regular investing partner.
That’s not exactly the external validation that GFG, Rocket and other investors had hoped for with this funding, and it certainly hints at issues with the business.
In a push for profitability and sustainability, GFG began shedding some of its less profitable business units earlier this year. That move caused internal strife with Zalora, its business in Southeast Asia, which triggered the loss of two partners and other senior staff within the organization.
One the plus side, GFG did finally get shot of its Jabong business India. Openly acknowledged as up for sale for around two years, it was acquired by Flipkart-owned Myntra for $70 million this summer.
Our source told us that we can expect more cost-cutting and sell-offs for GFG — while we know FoodPanda, another Rocket initiative, is also considering streamlining its business.
Remember how Lazada ran out of money before it managed to land an investment from Alibaba? It worked out ok in the end in that case, but was a heck of a rollercoaster-risk ride than Rocket won’t want all of its businesses to go through, hence the more cautious approach now.
First up, though, we’ll get a chance to see how bad things really are when Rocket announces its latest financials on September 22. Mark that date in your calendars!