Rocket Internet narrows losses but growth stalls

[November 30, 2016]  By Emma Thomasson

BERLIN (Reuters) - German e-commerce investor Rocket Internet reined in losses at its main start-ups in the third quarter but revenue growth slowed at meal box delivery firm HelloFresh and online furniture site Home24.

Founded in Berlin in 2007, Rocket has built up dozens of businesses ranging from fashion e-commerce to food delivery in a bid to replicate the success of Amazon and Alibaba in new markets.

As it seeks to prepare the start-ups for stock market listings and respond to investor concerns about mounting losses, it has shifted its focus toward turning its businesses profitable, even at the expense of slower revenue growth.

Chief Executive Oliver Samwer, speaking to journalists after the company's results on Wednesday, reiterated a pledge to make three start-ups profitable by the end of 2017, but declined to comment on plans for any imminent listings, saying that would depend on market conditions.

Rocket's shares, which have fallen more than a third this year after it slashed its valuations for several of its major firms, were up 1.6 percent by 0948 GMT (4:48 ET), outperforming a 0.1 percent rise in the German small-cap index <.SDAXI>.

Jefferies analyst David Reynolds, who has a "hold" on the stock, said Rocket's update was reassuring, noting progress on limiting losses and the firm's solid cash position.

Rocket said aggregate revenue of selected companies grew by 31 percent to 1.58 billion euros ($1.7 billion) in the first nine months of the year, a slight slowdown from a growth rate of 32 percent in the first half.

Sales growth fell fastest at HelloFresh, Rocket's biggest investment and seen as one of the most likely candidates for an initial public offering. However, it trimmed its losses due to improving scale in logistics and marketing.

HelloFresh third-quarter sales rose 72 percent, almost half the 124 percent of the previous quarter, a slowdown Rocket blamed on customers pausing their subscriptions for its recipe and ingredients boxes as they went on holiday in July and August.

Rocket only publishes limited figures for its other major food investment and potential IPO candidate - take-away firm Delivery Hero. It saw orders processed rise 71 percent in the first nine months, up from 45 percent in the first half.

The logo of of Rocket Internet, a German venture capital group is pictured in this September 24, 2014 illustration photo. REUTERS/Dado Ruvic/File Photo

Its Home24 site saw growth almost stop in the third quarter, which it said was due to traditionally slower sales of furniture in summer, but it managed to reduce its losses.

The higher-end home furnishings site Westwing revived its sales growth and narrowed its loss as it improved processes and efficiency in areas like logistics and customer care.

Rocket's aggregate adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin improved to a negative 17.5 percent in January to September from a negative 34.4 percent a year ago.

It also said it has 2.7 billion euros of cash still available after pledging that the 1 billion euros it burnt through in 2015 will mark a peak for losses.

Global Fashion Group (GFG), the emerging markets clothing retailer which is part owned by Rocket, had already reported that revenue growth slowed in the third quarter although its losses narrowed.

(Reporting by Emma Thomasson; Editing by Victoria Bryan and Susan Fenton)

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