By Mia Shanley and Helena Soderpalm
STOCKHOLM (StartName) – Painful memories of the Internet bubble bursting more than a decade ago are likely to cut the risk that tech stocks get too frothy, as newcomers Zalando and Rocket Internet prepare to make market debuts, the head of Sweden’s Kinnevik said.
The company is the biggest investor in German online fashion retailer Zalando and has an 18.5 percent stake in venture capital company Rocket Internet, which has ambitions to be the largest Internet business outside the United States and China.
The two companies’ plans to go public coincide with a flurry of big e-commerce listings, including Alibaba’s $22 billion share sale, which could be the world’s largest-ever initial public offering.
Rich valuations for tech start-ups such as messaging service Snapchat and taxi app Uber, based on latest funding rounds, have raised eyebrows as the tech-heavy Nasdaq index pushes toward a peak last seen in 2000 before the tech bubble burst.
Asked on Thursday if tech stocks could be looking frothy, Kinnevik CEO Lorenzo Grabau said: “I think the tech sector went through a very major bubble a decade or 15 years ago and I think a lot of investors still bear the scars today, and so they approach matters with a degree of ‘once bitten twice shy’.
“I think Alibaba’s IPO has been described as moderately priced. Investors are well aware of the risk,” he told StartName during Kinnevik’s day of briefings for analysts and investors.
Some analysts have said Zalando’s flotation price range of 18.00 to 22.50 euros, valuing it at up to 5.6 billion euros ($7.2 bln), looked a bit cautious.
Kinnevik, founded in 1936, is one of the largest listed investment companies in Europe, having transformed itself from an industrial group into a telecoms and media giant and more recently an investor in e-commerce. Zalando is Europe’s biggest online fashion retailer and potentially Kinnevik’s star holding.
“We had 2 billion euros in revenues for the last 12 months … We are the fastest growing company in Europe. That’s pretty cool actually,” Zalando CEO Robert Gentz said.
Zalando, whose listing would be one of Germany’s biggest technology stock flotations for years, with trading planned for Oct. 1 in Frankfurt, sees the second quarter’s 25 percent revenue growth as “sustainable”.
Grabau said he expected strong investor demand for both Zalando’s and Rocket Internet’s listings and did not expect them to drain interest from Kinnevik itself, which backed them early on and will continue to hold major stakes.
“I think the equity story of the three companies is very distinct and I think there is a place for all of us to be successful in the equity markets,” said Grabau.
Analyst Bjorn Gustafsson at brokerage Kepler Cheuvreux said the pricing of Zalando’s float was on the cautious side to ensure investor interest. “It’s crucial they get this right as they get ready to IPO Rocket Internet as well,” he said.
Rocket Internet, which helped launch Zalando, unveiled plans last week for a listing that could value the business at about $6.5 billion.
Despite the impressive growth in users as more buyers shop online for fashion from party dresses to stilettos, e-commerce is not without its problems. Britain’s ASOS for instance this week warned on profit for the third time in seven months, saying it needed to cut prices in international markets to reverse a sharp slowdown in sales growth.
Zalando, which eked out its first-ever profit in the second quarter, has no immediate expansion plans, preferring to focus on established European markets. Board member Rubin Ritter told reporters in Frankfurt the company planned to spend its money on technological acquisitions, such as its picture recognition software, rather than buying up peers.
Kinnevik’s e-commerce investment portfolio makes up about 39 percent of its holdings, while telecoms is the biggest at 50 percent of the total, according to the company’s website.
Grabau said telecoms assets Tele2 and Millicom remained key to the investment group and provided good cash flow, even though they were lower growth.
Regarding its Tele2 business in Sweden and possible consolidation opportunities there, Grabau did not foresee any imminent deals. “I believe the markets can totally sustain four profitable operators as shown with most European countries,” he said, referring to Sweden’s main telecoms companies.
(1 US dollar = 7.1400 Swedish crown)
(Additional reporting by Alexander Huebner and Eric Auchard in Frankfurt; Editing by Jane Merriman and David Holmes)