Delivery Hero's IPO is exactly what Rocket Internet needs

Oliver Samwer rocket internetHannelore Foerster/Getty ImagesOliver Samwer, CEO of Rocket Internet, celebrates the launch of the company’s initial public offering (IPO).

LONDON — Delivery Hero’s stock market listing could be exactly what Rocket Internet has been looking for.

Rocket Internet, which invests in existing internet companies and builds some of its own, went public on the Frankfurt Stock Exchange in October 2014 in an IPO that valued the company at $US8.4 billion (£6.5 billion).

But following the initial celebrations, the company’s share price fell significantly (see graph below) as investors struggled to understand the company’s strategy and questions were being asked of founder and CEO Oliver Samwer.

Rocket’s share price plummeted in 2015 and never really recovered. Today, the company is valued at $US3.54 billion (£2.74 billion) — less than half of what it was valued at the time of the IPO.

Rocket Internet share priceGoogleRocket Internet’s share price.

But Rocket Internet may have got a boost on Tuesday when Delivery Hero, one of the companies it has been nurturing and investing in over the last few years, announced that it plans to go public.

The Berlin-headquartered takeaway service revealed that it plans to IPO “in the coming months” in a bid to raise more money to fund an aggressive worldwide expansion. The company, which has already raised $US1.8 billion (£1.4 billion) and is not yet profitable, will aim to raise a further $US500 million (£387 million) from investors through the listing.

Delivery Hero CEO Niklas ÖstbergDelivery HeroDelivery Hero CEO Niklas Östberg

“Delivery Hero has been on a strong growth path since its inception,” said Delivery Hero CEO Niklas Östberg in a statement.

“Going public and listing our shares on the stock market will further enable us to develop the company and provide us with additional capital to expand our leadership positions in the online food ordering and delivery market. An IPO will also give us more flexibility as we continue to focus on creating an amazing takeaway experience.”

An IPO is exactly what Rocket needed, according to analysts at Barclays.

“In our view, the key to the story is an IPO of one of the assets in 2017E,” several Barclays analysts wrote in a note to investors in April, saying at the time that Delivery Hero and HelloFresh were likely candidates.

Rocket Internet has dozens of portfolio companies in its portfolio but the majority of them are unprofitable and Rocket doesn’t yet have a track record for creating businesses that can go on to a successful exit. Assuming that the Delivery Hero IPO goes to plan, the listing will give Rocket’s investors a vote of confidence that Rocket can build companies that are capable of successful exits.

Rocket Internet reported losses of €741 million (£630 million) for 2016 in April, partly due to a lack of significant exits. Losses at the company were almost four times higher than losses in 2015, when the company reported a loss of €197.8 million (£168 million).

A Rocket Internet spokesperson told Business Insider: “We welcome this step by Delivery Hero.”

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