German tech company lost $690 million in the first half of 2016, blames its fashion arm

folarin okunola

September 5, 2016 12:18 PM

Rocket says most of the blame rests on the shoulders of GFG, the holding company that manages its group of fashion-focused e-commerce businesses.

CEO of Rocket Internet, Oliver Samwer

Rocket Internet is preparing to share its financial results come September 22 but a warning is in store: its financials aren't going to be filled with roses and proper makeup.

In an announcement from the company, the German company said it lost €617 million (about $690 million) across its range of online businesses during the first half of the year.

Rocket says most of the blame rests on the shoulders of GFG (Global Fashion Group), the holding company that manages its group of fashion-focused e-commerce businesses that are all over the world.

“GFG contributed negative EUR 383 million to the Rocket Internet’s first half year results. The result was further impacted by special items such as impairments, fair value adjustments and – to a lesser extent – positive special items,” the company said, according to a Techcrunch report.

“As a result of deconsolidation effects, group revenues in the first half of 2016 decreased to EUR 29 million compared to EUR 71 million in first half of 2015,” Rocket Internet said.

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In spite of all that, Rocket Internet boss Oliver Samwer expects “at least three of our selected portfolio companies to turn profitable by the end of 2017, and that the aggregate EBITDA losses of the selected portfolio companies will have peaked in 2015.”

This is not obviously bad news, but those following GFG and Rocket Internet business shouldn't be too shocked by these confessions. The signs have been there and they are not limited to just the downward spiral of Rocket's share price in 2016.

GFG had closed a sizeable downround of funding earlier this year after it raised a total of $365 million at a $1.1 billion valuation - that's massively down from the $3.4 billion valuation it had in 2015.

GFG had also put itself before over 90 investors before it raised that round of funding, which means there must have been trouble with the business.

As it continued to struggle to sustain its business model and make it profitable, GFG started to sell off some of its less profitable business units.

GFG will probably do more cost-cutting and trimming in the coming months but before that, we'll get a chance to see how things really are at Rocket Internet when it announces its latest financial results on September 22. It is unclear how all of these troubles at Rocket Internet will affect Jumia and their other African-based businesses. Stay with Pulse Tech to remain updated.

folarin okunola