Quick overview

As expected, Rocket Internet posted higher aggregate GMV and revenue growth in 2017. It is noted that it had failed to decrease its losses by a significant percentage (reflected on aggregate adjusted EBITDA) – posting a loss of EUR 315 million (2017) versus EUR 359 million (2016). This could be a worrying trend for investors.

Most losses come from Hello Fresh (groceries), Global Fashion Group (Zalora etc), and Jumia (ecommerce). While losses from both Hello Fresh and Global Fashion Group seemed to have reduced (not drastically), Jumia’s losses seemed to have compounded.

Investors are well aware of Hello Fresh’s growing dominance over Blue Apron (its closes rival in the US market), as well as Jumia’s undisputed dominance in the African continent. The question we pose is, how much longer can these ventures continue to burn obscene amounts of money in the name of growth and market share?

Another question is – is Jumia burning all this money to create a (leading and) defendable position in Africa? Or is it educating the market so other (deep-pocketed) players can come in to reap the benefits?

Strong cash position, which allow Rocket Internet to continue sinking money into its ventures (while it finds a buyer). Worthy also to note that Rocket Internet’s price to earnings ratio is hovering around 1,800 to 1.

To place a fair value on Rocket Internet’s price per share, would require dividing the net cash holdings of the company (at EUR 2,400,000,000) against the total amount of shares outstanding (at 165,140,000) which is at EUR 14.53 per share. As it currently trades at almost EUR 25.00 per share, Rocket Internet shares are definitely overvalued.

It is also fair to note that the high share prices are as a result of  the direct share purchasing programme – where on the 16th April 2018, the board announced that it will buy back up to 15.47 million of its shares, representing 9.37% of its capital, at an offer price of EUR 24.00 per share. Perhaps Rocket Internet thinks its shares are undervalued?

Our take

As reported recently, PLDT – one of Rocket Internet’s most important ally in Southeast Asia, decided to divest most of its shareholdings in the company. It was only in 2014 that PLDT decided to invest EUR 333 million for a 10 percent stake in Rocket Internet.

It really seemed that Rocket Internet’s performance was a in PLDT Chairman’s own words – “disappointing”. We couldn’t disagree. One thing is for sure, the golden days are over.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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