Apr 27, 2016
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Kinnevik's Global Fashion Group cut sparks Rocket Internet fall

Apr 27, 2016

Sweden's Kinnevik revealed a big drop in the value of Global Fashion Group (GFG), highlighting concerns over how much digital consumer businesses are worth and knocking shares in co-investor Rocket Internet.

Global Fashion Group

Kinnevik said the lower value of the online fashion firm, which involves a widely different valuation view from Germany's Rocket, weighed on its first quarter net asset value. The two holding companies share a common strategy of placing big bets in emerging markets and ecommerce, but differences in their strategies and risk tolerance are widening.

Wednesday's news knocked Rocket's already dented shares, which were down 14.5 percent at 1300 GMT (8 a.m. ET) as investors fretted over possible markdowns in its other companies. Rocket's stock has fallen 41 percent since its October 2014 IPO.

Shares in Kinnevik, also a shareholder in Rocket Internet, were down 3 percent at 1300 GMT, compared with a largely flat wider Stockholm bourse.

Kinnevik and Rocket disclosed a new funding round of 300 million euros ($339 million) for GFG, which is exposed to struggling economies in Brazil and Russia but also stronger performing markets in southeast Asia, at a sharply reduced valuation of 1.0 billion euros.

This cut Kinnevik's appraisal of the value of its stake by 38 percent and forced Rocket, which valued GFG at 3 billion euros as recently as March, to cut its valuation by 67 percent.

Technology company valuations have come under pressure since the third quarter of 2015, with global venture capital investments falling by a third since then, according to a recent CB Insights and KPMG report.

"It's a perfect storm of everything going wrong from a valuation point of view despite everything going fine for the company," Kinnevik Chief Executive Lorenzo Grabau told Reuters.

Grabau said Kinnevik's accounting for assets such as GFG reflected a conservative approach to the falling prices of venture capital-backed peers and restricted funding in private markets, while Rocket's methods relied on transaction values.

"This is the first real down round in Rocket's portfolio and so the bearish picture today makes a lot of sense," said Neil Campling, technology analyst at Aviate Global.

"This is a substantial mark down and we have had a few questions on what its other key businesses like Hello Fresh might be valued at now."


Kinnevik, which is also a major shareholder in Europe's biggest dedicated online fashion firm Zalando, said its own net asset value fell to 72.7 billion crowns ($9 billion) due to a fall in the value of both its listed and privately held assets.

GFG, which includes online fashion businesses Zalora in Southeast Asia, Dafiti in Latin America and Lamoda in Russia, is 26 percent owned by Kinnevik.

Grabau said Kinnevik, which is flush with cash following last year's sale of its stake in Russian online classifieds firm Avito, would take advantage of weaker valuations with possible new investments in financial technology and healthcare.

"This is the year of fintech - the market is maturing in terms of consumer adoption of new business models and the opportunities are more reasonably priced than last year."

"If we were to make another investment in the next 6 months, it would probably be fintech," he added.

Grabau frequently describes his Internet investing approach as "conservative" and "disciplined" and at an investor conference in November said the free flow of capital during 2015 into late-stage companies "made us feel quite uncomfortable."

By contrast, Rocket Internet boss Oliver Samwer remains bullish, talking about growth, gaining scale, and rapidly launching new companies using an internal company creation process dubbed "SkyRocket".

"Nothing of our thesis has changed," he said at the company's investor day earlier this month.

Kinnevik, which recently invested $65 million worth of shares in U.S. investment advice firm Betterment, is returning 7.1 billion crowns to shareholders in the first half of 2016.

$1 = 8.1016 Swedish crowns

$1 = 0.8842 euro

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