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Kinnevik CEO says lessons from first Internet bubble to curb tech froth
September 18, 2014 / 1:06 PM / 3 years ago

Kinnevik CEO says lessons from first Internet bubble to curb tech froth

STOCKHOLM, Sept 18 (Reuters) - Painful memories of the Internet bubble more than a decade ago are likely to cut the risk that tech stocks get too frothy as online newcomers Zalando and Rocket Internet prepare to make market debuts, the CEO of Sweden’s Kinnevik said.

The Swedish 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 other big e-commerce listings, including Alibaba’s $22 billion share sale on Thursday in what may 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 Nasdaq pushes towards a peak last seen in 2000 before the tech bubble burst.

When asked if technology markets could be looking a little frothy, Kinnevik Chief Executive 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 Reuters on the sidelines of Kinnevik’s capital markets day on Thursday.

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.

Its next move was into e-commerce via its bet on Zalando and a number of emerging market fashion businesses under the Rocket Internet umbrella.

Zalando, also a Rocket Internet start-up, is now Europe’s biggest online fashion retailer and potentially Kinnevik’s star holding.

Grabau said he expected strong investor demand in both Zalando and Rocket Internet’s listings, and did not expect them to drain investor interest from Kinnevik itself, which backed them early on and which will continue to hold major stakes.

“I think the equity story of the three companies (Zalando, Rocket and Kinnevik) is very distinct, and I think there is a place for all of us to be successful in the equity markets,” said Grabau, a former Goldman Sachs banker hired earlier this year as Zalando and Rocket Internet prepared to go public.

He said there was no shortage of investor cash looking for a return given the level of interest rates. “I think there are plenty of investors interested in the different stories.”

Zalando IPO-ZLDO.F priced its initial public offering on Wednesday in a range of 18.00 to 22.50 euros per share, which could value the company at up to 5.6 billion euros ($7.2 bln).

Kepler Cheuvreux analyst Bjorn Gustafsson said his view was that Zalando’s pricing 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.”

Rocket Internet, which helped launch Zalando, unveiled plans last week for a listing that could value the business at about $6.5 billion.

Kinnevik, controlled by Sweden’s Stenbeck family, has produced an average effective yield of about 17 percent for shareholders in the last 30 years. Its net asset value has roughly tripled since 2009 to 68.5 billion Swedish crowns (9.59 billion US dollar) at the end of June

Its 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.

But Kinnevik shares have fallen 14 percent year-to-date, partly on expectations investors may shift their holdings in favour of direct ownership in Zalando and Rocket Internet, and also due to concerns over the group’s exposure to Russia.

Kinnevik still has major stakes in telecoms operators Tele2 and Millicom, assets which represent about half of its total investments.

Grabau said the telecoms assets 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 in the country, Grabau said he 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) (Reporting by Mia Shanley and Helena Soderpalm. Editing by Jane Merriman)

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