Rocket Internet Needs to Do Something Spectacular

(Bloomberg Gadfly) -- It's time to give Rocket Internet SE a little credit. Twice this year chief executive Oliver Samwer has negotiated sales of stakes in the German company's startups that have realized solid gains.

On Thursday, Rocket announced the sale of half its shares in Delivery Hero AG to Naspers Limited for 660 million euros ($777 million), leaving it with about 13 percent of the European food delivery company. The divestment means that Rocket has so far earned about 2.6 times its invested capital in Delivery Hero, whose shares have risen by roughly 30 percent since it went public in June. It didn't seem to matter that Rocket had no board seat and very little influence over the company.

Rocket made out even better on its exit from Lazada, an Asian online retailer that it founded in 2011 and sold in stages to China's Alibaba. It made about 20 times its invested capital of 18 million euros, although the proceeds were smaller at 373 million euros. More important though, Lazada was one of Samwer's babies, incubated by Rocket from inception. Delivery Hero was backed only in 2015, when the takeout app was already well on its way.

Regardless of these wins, investors are right to remain wary of Rocket. It has an unusual business model and often poor disclosure. As I've written before, Rocket is essentially a listed venture capital fund and not a traditional technology company. It makes money for investors when it exits a startup, either by selling to a strategic buyer or taking it public. While it is broadly understood that venture as an asset class needs investors to wait years to realize gains, some shareholders don't seem to have grasped that with Rocket.

Admittedly, it's not an ideal fit for public markets. Rocket's shares trade at close to half their 2014 initial public offering price. Short interest remains high, although fewer investors are betting against the shares than a year ago. The shares rose more than 4 percent on Thursday after the Delivery Hero news.

Samwer has a decision to make: whether to buy back more shares to partially reward any impatient investors, especially bearing in mind that an IPO of Rocket-backed Hello Fresh might be a ways off -- just look at how U.S. meal-kit peer Blue Apron Holdings Inc. has got on since listing. 

Rocket can afford to be generous. Once it gets the Delivery Hero proceeds, it will have about 2.3 billion euros of cash on its balance sheet. The CEO committed to a small 100 million euro buyback in August. If he wants to win more stock market friends, a grander gesture would be appropriate.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Leila Abboud is a former Bloomberg Gadfly columnist.

To contact the author of this story: Leila Abboud in Paris at labboud@bloomberg.net.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net.