Last week, I was stuck in traffic on the Sukhumvit Road in Thailand.
In my mirror, I saw a delivery boy on a scooter skilfully manoeuvring through the traffic jam. As he passed me by, I caught a flash of the logo on the back of his scooter: a smiling panda and the word “Foodpanda”.
I’d never heard the name before and, intrigued, I decided to look it up. The results were rather interesting.
Established in 2012, Foodpanda is an online food delivery service operating in 40 countries. The company is committed to “completely disrupting the way people order food”.
And it’s certainly off to a good start.
In February 2015, it acquired competitors in seven Asian countries, including Malaysia, the Philippines and Singapore.
In early March, it followed up by asking existing shareholders for an additional $110m of investment (also known as a cash call).
But what I found most interesting about Foodpanda is that it’s owned by Rocket Internet AG (Germany: RKET), a German internet company, which holds a 52% stake.
This isn’t Rocket Internet’s first venture into Asia
Rocket Internet has quietly but aggressively launched a number of companies in the Asian e-commerce sector, particularly in Southeast Asia.
One example is Lazada: Southeast Asia’s biggest online shopping mall, with operations in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
The company offers 50,000 products and 4,000 categories ranging from electrical gadgets, beauty products and baby milk. It has an estimated 30.5 million visits per month and it is Indonesia’s leading e-commerce company in terms of traffic volume.
Another example is Zalora, which claims to be the largest and fastest-growing fashion e-commerce site in Southeast Asia. It carries over 500 top international and local brands and designs.
Rocket Internet has also just announced a couple of fresh investments: Bridestory, Indonesia’s source of leading online wedding vendors, and Everjobs, a job portal operating in Myanmar and Sri Lanka.
These new companies all have one in thing in common: they work in the field of e-commerce.
It’s a great time to be investing in e-commerce
E-commerce is one of the fastest growing business sectors, but Southeast Asia is lagging behind.
E-commerce presently accounts for about 1% of total retail sales in the region. This pales in comparison with China’s 7.2% (EU 7.8% and the US 5.8%).
But I think the gap between Southeast Asia and these other countries will start to close very soon.
Even if we take the differences between each country into account, it’s fair to assume Southeast Asia offers enormous growth potential. Two big drivers of this will be falling smartphone prices and the region’s young population.
So how does Rocket Internet fit into this?
A company with big ambitions
Marc, Oliver and Ander Samwer, three young German brothers founded Rocket Internet in 2007 after being inspired by the success of Silicon Valley and its many e-commerce companies. Since then, Rocket has grown – now employing 25,000 people and operating in more than 100 countries.
In October last year, Rocket Internet went public in Germany. The company aims “to become the world’s largest internet platform outside of the United States and China”.
The business model is simple: identify proven online business models, build and upscale them in new markets, with a particular focus on emerging markets.
Here the German connection is valuable given the country’s excellent track record in infrastructure, processes and technology.
So far. Rocket Internet has ratcheted up stupendous success. Early investors have seen their initial investment of €169m increase to more than €4bn – equivalent to a ’25 times-bagger’.
It is hard to say whether this success awaits future investors. It really depends on three factors.
We’ll know much more on 31 March
Firstly, the five analysts covering the stock forecast the company to report negative earnings through 2017, according to Bloomberg.
Secondly, in a report on Rocket Internet, analysts at JP Morgan stressed several potential downside risks: the complexity of the business structure, the difficulty in valuation, the fact that all Rocket’s companies are currently loss-making (and therefore lacking fundamental valuation support in any weak financial market).
Thirdly, we must acknowledge that e-commerce companies are cash guzzlers. What’s more, in sectors like this, there can only be a few winners. Just think about Google, Facebook, eBay and so on.
Many aspiring Asian-based entrepreneurs and incumbent consumer companies will try to give Rocket Internet a run for its money and there’s no guarantee that Rocket Internet will emerge victorious.
The gap between the target price of €53.75 and the current price is wider than it’s ever been, indicating something has to give.
But we should get an indication of where the stock price is heading very soon.
On 31 March, the first lock-up period for investors expires, followed by a second lock-up on 14 May (due to a secondary offering in February 2015).
I presume these early investors have done thorough due diligence on Rocket Internet. So if they keep their stakes unchanged, it would send a bullish signal to the rest of us.