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3rd Place Final Dcf4e83235 PDF
3rd Place Final Dcf4e83235 PDF
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Disclaimer: This report has been distributed for information purposes only. Neither the information nor any
opinions expressed constitute a recommendation to buy or sell the assets or securities mentioned, or to invest
in any investment strategy or product related to such assets or securities. It is not intended to provide
personal investment advice, and it does not take into account the financial situation, specific investment
objectives, or particular needs of any person or entity that may receive this report. Persons reading this report
should seek professional financial advice regarding the appropriateness of investing in any assets or securities
discussed in this report. As of the publication date of this report, Deerwood Capital, LLC (Deerwood), has
long positions in and may own option interests on the stock of the Company covered herein (Investment AB
Kinnevik), and stand to realize gains in the event that the price of the stock increases. Following publication,
Deerwood may transact in the securities of the Company. Deerwood has obtained all information herein from
sources believed to be reliable and accurate. However, such information is presented as is, without
warranty of any kind whether express or implied and without any representation as to the results obtained
from its use. All expressions of opinion are subject to change without notice, and Deerwood does not
undertake to update this report or any information contained herein. Past performance is not necessarily
indicative of future results. This report is not a recommendation to buy or sell any securities or assets of
companies covered herein. Past performance is not necessarily indicative of future results. Please read our full
legal disclaimer at the end of this report.
SEK 446/share
67% cumulative, or +18.5% annualized
We believe an investment in Kinnevik will produce mid-teens annual returns over a long time horizon for
three reasons:
1) The third generation of Kinnevik management, led by Cristina Stenbeck since 2007, has
successfully pivoted their capital allocation focus to actively backing online and e-commerce
ventures in developing countries. Over the past eight years, the online investment portfolio has
generated an average annual growth rate of 34%. Through its network of relationships with
world-class institutional investors, Kinnevik has evolved into a leading partner for entrepreneurs
building the next generation of internet franchises.
2) Kinneviks portfolio will benefit tremendously from rapidly growing demand for internet and ecommerce services in the core markets outside the US and China. The three megatrends behind
this tailwind are growth in smartphone and internet penetration, shift in consumer spending
from offline to online, and the export of proven business models to new, untapped markets. We
believe multiple portfolio companies are well-positioned to become the emerging market
equivalents of Amazon, Alibaba, Craigslist, and Zalando.
3) We estimate Kinneviks 2017 sum-of-the-parts net asset value of SEK 446 per share, which is an
+18.5% annualized total return (including dividends) from the current price of SEK 281 per
share. Catalysts for closing the discount between market price and NAV are potential IPOs of
Avito and Global Fashion Group, strategic consolidation of telecom and media stakes, and
continued development and disclosure of the rapidly growing unlisted online ventures.
Kinnevik at a Glance
Investment AB Kinnevik is a publicly traded investment company domiciled and located in Sweden. It
has been owner-operated by the original three founding families since 1936, who control the company
using super-voting shares. Over the past 30 years the annual total return of Kinnevik Class B shares has
been 16%, compared to the S&P 500 annual total return of 11.4%.
Kinnevik invests globally in the telecom, media, and online sectors. At the end of 2014, its portfolio of
public and private companies was valued at a total net asset value of USD $10.2 billion. Of the total net
asset value, 82% is attributed to publicly traded investments and 18% is attributed to private unlisted
investments. Many of the private holdings are only accessible to the public via Kinnevik, such as
interests in Quikr, Saltside, Bayport, and Bima.
Zalando
5%
6%
Rocket Internet
7%
41%
13%
Entertainment
Financial Services & Other
23%
Avito
As a family-controlled company with permanent capital, Kinnevik has the flexibility to invest across
companies in various stages of growth and over multi-decade time horizons. Post-investment, Kinnevik
creates additional value as an active owner-partner by seeking to stimulate operational improvements,
provide strategic leadership and bring capital discipline across the portfolio, as stated in the 2013
Annual Report.
After current management assumed control in 2007 with the appointment of Cristina Stenbeck as
Chairman, the total annual return to shareholders from 2007-2014 has been 12.1%, compared to the
S&P 500 total annual return of 7.0%. Managements long-term goal is to increase the share price and
NAV at 15% per year.
Under Cristinas leadership, Kinnevik is best known for being the earliest and largest outside investor
that funded Rocket Internet (111% IRR) and Zalando (38% IRR) to their eventual multibillion-dollar IPOs.
The second difference is that Kinnevik trades at an 8% discount to its net asset value, with no value
ascribed to management or its investing platform. In contrast, Rocket Internet ($9.7 billion market cap),
is priced at a 43% premium to its net asset value, implying a "platform value" ascribed to Rocket's
management of $2.9 billion. It is ironic that Kinnevik, which is directly co-invested with the majority of
Rockets portfolio, is priced at a multi-billion dollar discount, despite an excellent track record
independently backing Avito, Bayport, Quikr, Saltside, and Konga. As Cristina and her team continue to
prove themselves as an effective venture capital platform, the NAV discount could turn into a NAV
premium.
"Kinnevik has a very clear vision: to be a best in class, value added investor focused on creating
shareholder returns by driving industry consolidation in mature businesses and by supporting
new, consumer-focused digital growth companies."
-Cristina Stenbeck, 2013 Letter to Shareholders
The third difference is that Kinnevik has no debt at the holding company level and does not own highly
leveraged operating businesses. Management has indicated that all capital allocation decisions will be
made within the requirements of holding a net cash position. As investors focused on avoiding downside
as much as capturing upside, we believe this is the correct and prudent way to own a portfolio of growth
equity assets, which require the flexibility and long-term horizon of a non-leveraged investor.
"I've seen more people fail because of liquor and leverage - leverage being borrowed money.
You really don't need leverage in this world much. If you're smart, you're going to make a lot of
money without borrowing." -Warren Buffett
Finally, we believe that the market is mispricing Kinnevik shares because the traditional investor base
remains skeptical of the unprofitable yet rapidly growing online companies, as seen by the shares' 25-40%
discount to NAV during 2009-2013. After Zalando and Rocket Internet were listed publicly, the discount
narrowed to 0-15% during 2014. As the smaller unlisted companies grow their NAV contribution and
eventually IPO, further shareholder value will be unlocked via higher NAV and a narrower discount.
450
425
400
375
350
325
300
275
Metro
Financial Services
Other marketplaces
Saltside
Quikr
Avito
General e-commerce
Qliro
Tele2
Millicom
Zalando
Rocket Internet
250
As most of the unlisted holdings are in the Online portfolio, 70% of the cumulative gain is attributed to
Online, 26% to Telecom, and 4% to Financial Services and Entertainment.
The valuation estimates for each individual company are summarized in our NAV model below, and our
methodology and rationale are described in the 2017 NAV Valuation Model and Methodology section
on page 23. Our individual company analyses begin on page 26.
100%
Valuation
(USD)
2014 4Q Valuation
KINV
NAV
Ownership
Contribution
(SEK)
2015-2017 Change
Valuation Change in NAV
Growth
per share
$9,735
$6,572
$2,892
$828
$895
$121
$446
$603
14%
32%
26%
26%
26%
26%
26%
26%
10,620
19,030
6,092
inc. GFG
inc. GFG
inc. GFG
inc. GFG
inc. GFG
$11,986
$9,089
$6,176
$1,306
$1,247
$565
$2,217
$842
13%
32%
24%
24%
23%
26%
25%
22%
12,988
23,996
12,249
inc. GFG
inc. GFG
inc. GFG
inc. GFG
inc. GFG
23%
38%
114%
58%
39%
368%
397%
40%
9
18
22
inc. GFG
inc. GFG
inc. GFG
inc. GFG
inc. GFG
$937
$516
$107
$295
20%
13%
Mixed
29%
833
379
93
737
$1,086
$923
$11
$428
20%
13%
Mixed
29%
1,789
989
93
1,005
16%
79%
3
2
0
1
$1,220
$326
$543
$92
$31
10%
9%
10%
41%
Mixed
739
inc. Lazada
409
292
257
$2,829
$809
$776
$349
$31
10%
7%
8%
30%
Mixed
2,331
449
543
849
257
132%
148%
43%
280%
7
inc. Lazada
0
2
0
$957
$343
$23
$170
$14
31%
16%
88%
29%
Mixed
2,298
425
154
381
115
$3,290
$1,461
$307
$312
$14
31%
16%
61%
29%
Mixed
8,514
1,926
1,543
745
115
244%
326%
1260%
84%
0%
22
5
5
1
0
$6,916
$5,320
38%
30%
22,039
12,865
$11,236
$3,954
38%
30%
35,047
9,839
62%
-26%
47
-11
$2,135
$39
$17
$13
20%
100%
100%
100%
3,358
321
140
106
$2,645
$0
$17
$13
20%
100%
100%
100%
4,359
0
140
106
24%
-100%
0%
0%
4
-1
0
0
$430
$224
$76
$64
$30
$51
31%
33%
25%
39%
100%
100%
1,032
494
151
206
250
424
$725
$224
$76
$140
$30
$51
31%
33%
25%
39%
100%
100%
1,852
609
155
450
250
424
69%
0%
0%
118%
0%
0%
3
0
0
1
0
0
$16
$0
$15,330
100%
100%
130
0
84,370
277
304
$16
$0
$19,127
100%
100%
130
0
123,742
277
446
0%
0%
0
0
45%
142
Risks
Disconnect between share price and net asset value
Historically, Kinneviks shares have traded at an average discount to NAV of 22% from 2005-2014, and
the discount has been as wide as 45% in 2008. Although the discount has narrowed considerably in the
last year due to the listing of Zalando and Rocket Internet, there is no guarantee that shares will trade at
100% of NAV in 2017. However, based on managements recent comments in 2014 4Q, if shares traded
significantly below internal estimates of intrinsic value Kinnevik would repurchase shares in the open
market.
Currency risks
Kinneviks shares are denominated in Swedish Krona (SEK), and its portfolio companies' revenues and
assets are denominated in a variety of global currencies, including the Russian Ruble (RUB). As a result,
investors owning Kinnevik will be exposed to currency fluctuations.
Financing and operational risks
Many companies in the online portfolio require significant amounts of financing before reaching
profitability. By our estimates, in 2014 the unprofitable companies had aggregate EBITDA losses of EUR 867 million, and over the next three years will require total financing of EUR 1.1 billion. If new financing
cannot be raised due to deterioration in fundamental and competitive performance, or a poor capital
market environment, Kinnevik will incur losses. Mitigating the financing risk is Rockets successful track
record of raising capital from private and public sources.
Political and expropriation risks
A number of Kinneviks companies operate in countries with unfavorable political and economic regimes,
such as Avito, Lamoda, and MTG in Russia, and Konga and Jumia in Nigeria. If government authorities in
those regions take actions adverse to the interests of private shareholders, then Kinnevik will incur
losses.
Valuation risks
Valuation of securities is challenging and subject to uncertainty, particularly when valuing younger,
rapidly growing ventures such as those owned by Kinnevik. Our NAV estimate in 2017 is our best
attempt at predicting future values based on current available information. If the underlying portfolio
company fundamentals do not develop as we have forecast, then our NAV estimate will be different
than future realized NAV.
Corporate governance risks
Kinnevik has a dual-class share structure that gives the founding families and executives the majority of
voting power with a relatively small amount of equity. Families and senior managers could take actions
adverse to shareholder interests, with no recourse available to non-controlling shareholders.
Table of Contents
Executive Summary ................................................................................................................................ 1
Kinnevik at a Glance ............................................................................................................................... 2
Why Kinnevik, Why Now? ...................................................................................................................... 3
NAV Growth Forecast, 2015-2017.......................................................................................................... 4
Risks ........................................................................................................................................................ 6
Management and Share Ownership....................................................................................................... 8
Kinneviks Investing Track Record ........................................................................................................ 10
Three Megatrends Driving E-commerce Growth in Emerging Markets ............................................... 15
2017 NAV Valuation Model and Methodology .................................................................................... 23
Rocket Internet ................................................................................................................................. 26
Zalando ............................................................................................................................................. 32
Global Fashion Group ....................................................................................................................... 37
Home24 ............................................................................................................................................ 45
Westwing .......................................................................................................................................... 49
Qliro .................................................................................................................................................. 53
Lazada ............................................................................................................................................... 57
Linio .................................................................................................................................................. 61
Jumia and Konga............................................................................................................................... 66
Avito ................................................................................................................................................. 73
Quikr ................................................................................................................................................. 79
Saltside ............................................................................................................................................. 82
Wimdu .............................................................................................................................................. 85
Millicom ............................................................................................................................................ 88
Tele2 ................................................................................................................................................. 94
Modern Times Group ....................................................................................................................... 97
Bayport ........................................................................................................................................... 102
Bima ................................................................................................................................................ 106
Miscellaneous company analyses .................................................................................................. 110
Full Legal Disclaimer ........................................................................................................................... 113
Management Compensation
Executive compensation at Kinnevik is reasonable and modest, especially compared to US companies of
comparable size. In 2013 the CEO received total remuneration of SEK 15 million (USD $2 million), and 7
other Senior Executives received total remuneration of SEK 37 million ($700,000 each).
The long-term incentive plan awarding KINV shares to management is derived from a formula based on
the total return to Class B shares, growth in net asset value, and average return of portfolio company
groups, over a rolling three-year period. There is a maximum number of incentive shares awarded with
caps on dilution and profit per share, and is approved by a 90% vote of the Board of Directors.
In 2013, the total cost of running Kinneviks holding company investment operation, which includes
compensation for 30 employees, was SEK 218 million ($31 million), or 0.30% of net asset value, a good
value for shareholders when compared to a venture capital funds fees of "2 and 20", or active asset
managers' fees of 1.0-2.0%.
Key Events in Kinnevik History, 1936-2014
Kinneviks history can be divided into three periods, corresponding to the three generations of
Stenbecks that have guided the company through three investment paradigms. From 1936-1976, Hugo
Stenbeck invested primarily in industrials in the Scandinavian region. From 1976-2006, Jan Stenbeck, son
of Hugo Stenbeck, invested primarily in European and emerging markets telecom and media sectors.
From 2006 and onwards, Cristina Stenbeck, daughter of Jan Stenbeck, shifted focus to the internet,
online, and e-commerce sectors.
Below is a timeline of key events in Kinneviks history from inception to today:
1936 Kinnevik is founded by 3 friends, Robert von Horn, Wilhelm Klingspor, and Hugo Stenbeck (their
attorney), after selling their sugar company and were left with a farming company and cash. The
first investment was buying shares of Korsnas, a Swedish forestry and sawmill group.
1954 Kinnevik listed publicly.
1971 Jan Stenbeck, son of Hugo Stenbeck, joins the Kinnevik Board at the age of 30.
1976 Jan Stenbeck assumes management of the company after the passing of Hugo Stenbeck, and is
appointed Chairman 17 years later in 1993.
1979 - Kinnevik begins investing in mobile telecom and media businesses, which eventually become
Millicom, Tele2, and Modern Times Group.
1985 Invik & Co., the finance and asset management segment, is spun-out and listed publicly.
1997 Cristina Stenbeck, daughter of Jan Stenbeck, joins the board of Invik & Co. at age 21.
2002 Jan Stenbeck passes away.
2003 - Cristina Stenbeck is appointed Vice Chairman of Kinnevik.
2004 Invik & Co. is merged into Kinnevik. 1 year later, Invik & Co. is spun-off, listed publicly, and
acquired by a third party in 2007.
2006 Mia Brunell Livfors is appointed CEO, replacing Vigo Carlund. Kinnevik begins investing in online
ventures, starting with Kontakt East, the predecessor of Avito.
2007 Cristina Stenbeck appointed Chairman of Kinnevik.
2009 Kinnevik acquires Emesco AB, eliminating a cross-shareholding corporate structure. Begins
partnership with Rocket Internet and ramping up investments in internet and e-commerce.
2013 Divested remaining interests in Korsnas. Net cash position achieved at the Kinnevik holding
company level.
2014 Lorenzo Grabau is appointed CEO. Zalando and Rocket Internet listed publicly.
Source: Kinnevik website, filings, data
Accumulated
return
10,620
563
19,030
2,298
292
379
6,092
739
833
381
666
737
425
Accumulated
investment
(3,077)
195
7,916
617
209
175
3,620
680
794
429
807
887
362
Investment
period (yrs)
4
2
4
8
1
3
3
2
3
3
8
4
0.75
Date of initial
investment
2010
2013
2010
2006
2013
2011
2011
2012
2011
2012
2006
2010
2014
Date of
valuation
IRR
2014/12
2015/1
2014/12
2014/12
2014/12
2014/12
2014/12
2014/12
2014/12
2014/12
2014/12
2014/12
2014/12
111%
51%
38%
26%
24%
21%
19%
4%
1%
-3%
-5%
-6%
n/m
MOIC
14.2x
2.9x
2.4x
3.7x
1.4x
2.2x
1.7x
1.1x
1.0x
0.9x
0.8x
0.8x
n/m
83% of the total accumulated return in the online portfolio comes from just 3 investments - Rocket
Internet, Zalando, and Global Fashion Group (GFG). The smaller, non-Rocket investments have high IRRs
10
but lower dollar gains Saltside Technologies generated a 51% IRR, Avito 26%, and Konga 24%. Low
performers are the Airbnb clone Wimdu/Airizu, Qliro, and other undisclosed e-commerce and
marketplace investments (we believe this consist of stakes in IROKOtv, Fab Furnish, Yell.ru, Dealdey,
Foodpanda, and other undisclosed investments).
The non-online investment track record is mixed, with solid results from the newer financial ventures in
Milvik/Bima and Bayport, average returns from Tele2, Millicom, and MTG, and poor results from
Transcom, Metro, and Black Earth Farming.
On an aggregate basis, the online portfolio produced a weighted average annual return of 34%,
compared to the non-online portfolio weighted average annual return of 5%, for a total blended annual
return of 10% from 2007-2014. The remaining 2% per year total return on KINV shares during that
period came from dividends and a narrowing of the NAV discount from 30% in 2007 to 8% in 2014.
Aggregate investment performance, 2007-2014
Total investment
(SEK mm)
Online Portfolio Performance
13,614
Non-online Portfolio Performance
50,161
Total Portfolio Performance
63,775
Total return
(SEK mm)
43,055
72,730
115,785
Weighted
average years
4.0
7.8
6.4
MOIC
CAGR
3.2x
1.4x
1.8x
34%
5%
10%
Source: Kinnevik reports, company data and filings, press releases, Deerwood estimates
Managements strategy of shifting capital allocation from the non-online legacy portfolio to the online
portfolio appears correct, assuming that the high returns from online investing continue in the future.
The long-term goal of 15% total return to shareholders should consist of 10% returns from the legacy
holdings (primarily Millicom and Tele2) combined with 20-30% returns from the e-commerce and
marketplace ventures.
Capital Allocation, 2007-2014
For the same period of 2007-2014, we also categorized Kinnevik's cumulative cash flows from
operations, investing, and financing to see how management allocated capital. The cash + financial
assets amounts in 2007 and 2014 are very close proxies to net asset value, so the table below also
shows the drivers of net asset value growth over the past 8 years.
11
37,624
22,465
4,582
5,734
322
(16,464)
(8,879)
(3,893)
(2,905)
(2,068)
(1,170)
(279)
49,784
84,853
33,103
(35,658)
49,784
47,229
% of Total
Inflows
% of Total
Gain
50%
27%
12%
9%
6%
4%
1%
n/m
48%
10%
12%
1%
-35%
-19%
-8%
-6%
-4%
-2%
-1%
105%
NAV
39,168
84,370
45,202
From 2007-2014, total cash inflow from dividends, cash flows from operations (primarily Korsnas), and
sales of existing financial assets was SEK 33.1 billion. Of this total cash inflow, 50% was invested in
financial assets, 27% was paid out as dividends, 12% was used to pay down debt, and the remaining 19%
was used for CAPEX, interest expense, acquisitions of subsidiaries and a small amount of share
repurchase in 2008.
During the 8 year period, the total gain in cash + financial assets was SEK 47.2 billion, closely matching
the gain in NAV of SEK 45.2 billion. During that time, a total of SEK 16.5 billion was invested into financial
assets, producing unrealized gains on financial assets of SEK 49.8 billion, which was the primary driver of
the increase in NAV during the time period.
12
2006
2007
2008
2009
2010
2011
2012
2013
2014
The NAV discount was widest during 2008-2013, when the rapidly growing fair value marks of the online
portfolio were not given full credit by the market until 2014, when shares traded near or even above
100% of NAV.
We think the question of what the correct discount to NAV, whether it is 20% or 0%, is less important
than determining how much NAV will grow in the future. It would be a mistake for an investor to lose
out on even a single year of 15% NAV growth, much less multiple years of compounding at 15%, just to
wait for a one-time 10% discount on the entry price. Furthermore, management indicated in the most
recent 2014 4Q earnings conference call that the company would repurchase shares in the future if the
discount was sufficiently large, signaling to the market that the company would take action to drive its
shares closer to intrinsic value, which was hinted to be at least 100% of NAV.
Growing the Co-investors Network, 2006-2014
Due to the expansion into new regions and sectors after 2006, Kinnevik's investment opportunity set has
never been as favorable and large as it is today, which bodes well for future value-creating partnerships
and co-investments with a wide swath of world-class investors.
In 2006, excluding Millicom, less than 1% of the portfolio was invested outside Europe, consisting of a
small stake in Kontakt East with a handful of private company co-investors. In 2014, 28% of the portfolio
is now invested outside Europe, and Kinnevik has co-invested with over 53 world-class institutions in at
least 1 deal.
13
Investments
15
11
7
7
6
5
2
2
2
2
2
1
1
1
1
1
1
1
Co-Investor
DST
eBay
Falcon Edge Captal
Fidelity Investments
Helios
Hillhouse Capital
iMENA Group
International Finance
Latin Idea
Leapfrog Investments
Leon Group
Matrix Partners
Millicom
MTN Group
New Enterprise Assoc.
Nokia Growth Partners
Northgate
Northzone Ventures
Investments
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Co-Investor
Investments
Norwest Venture
1
Odey
1
Omidyar Network
1
Ontario Teachers Pension Plan
1
Pelham Associates
1
Phenomen Ventures
1
Philippine Long Distance
1
Quadrant Capital Advisors
1
REWE Group
1
Rise Capital
1
Scopia Capital Management
1
Temasek
1
Tesco Overseas
1
United Internet Ventures AG
1
Valorem
1
Warburg Pincus
1
Zimmermann Investment
1
Source: Kinnevik, Rocket Internet data, Crunchbase, news articles, company press releases
Because Kinnevik is not just a passive financial investor, but an active and strategic manager, it is able to
create additional value by bringing in new partners and driving strategic mergers for their companies.
For example, Kinnevik's evolving relationship with Naspers illustrates the potential synergies and
network effects within the portfolio. In March 2013, Avito was merged with Naspers-owned Slando/OLX
in Russia to create the dominant online classifieds site. At the same time, Naspers participated in an
equity raise for Konga in Nigeria. We see other potential benefits for consolidation between Kinnevik
and Naspers - Quikr and OLX could merge in India, and Saltside and OLX could merge in Bangladesh and
Ghana.
Further expansion of Kinneviks sphere of co-investors may also lead to investments in new regions such
as China. The most recent financing round for Saltside was led by Kinnevik as the majority shareholder,
when they brought in partners Hillhouse Capital and Brummer & Partners, which previously had no
formal relationship with Kinnevik. Hillhouse has successfully invested in many Chinese ventures (Tencent,
JD.com), and future investments in China may be possible via the Saltside relationship.
A Long Runway for Growth
Kinnevik has done well investing in the online sector from 2007-2014 it achieved an average annual
return of 34% per year. We believe the primary architect of the shift into the online space was Cristina
Stenbeck, which is very positive for long-term Kinnevik shareholders, as she is just shy of forty years old
and has multiple decades ahead of her to create value.
Likewise, the internet ecosystems of developing countries also have many decades of growth ahead of
them, as they benefit from increasing mobile, smartphone, and internet penetration, a shift to ecommerce, and the proliferation of proven online business models to new markets. In the following
section, we present the argument for why these three megatrends will be beneficial for Kinnevik's
portfolio companies in the coming years.
14
After people get basic access to the internet using a feature phone, they then use apps and rich media,
which require a smartphone. Global smartphone penetration has increased from 10% in 2010 to over 30%
in 2014, and will continue to rise in the coming years.
15
In contrast with the US and Western Europe, the top 15 developing countries smartphone penetration
at 23% is significantly lower than the global average, with smartphone subscribers forecast to grow 28%
in 2014.
There is strong, material upside for growth in smartphone adoption, which implies high upside in
internet usage and penetration.
16
The top 15 developing markets with large potential internet populations have an average internet
penetration of 22%, with a total population of 2.5 billion, in contrast to the global average of 37%
internet penetration.
Because of the smaller base, the percentage growth of internet users in non-US, non-European
countries is an order of magnitude higher compared to Western countries, with 33% to 205% growth in
number of internet users from 2009-2013 in the BRIICS countries.
If internet penetration will eventually reach 100% everywhere, and currently the average developing
countrys internet penetration is under 22%, the implication for investors and entrepreneurs is that it is
17
better to start a business in an untapped market with low competition. Additionally, the business will
benefit from the dual rising tides of internet user growth and economic growth.
When people get on the internet, they first thing they do is access new information (Google) and
communicate (Facebook). The second thing they do is buy and trade goods and services online. Since
Google and Facebook are already available in emerging markets, but Amazon and Craigslist are not,
there is a tremendous opportunity to capture the unmet, growing demand for e-commerce.
Megatrend #2 The oncoming tsunami of e-commerce
The internet allows people to discover, access, and obtain new products they were not able to get
access to previously, by purchasing a new or used item from an online retailer or online classifieds site.
The growth in e-commerce is a global phenomenon, and total B2C e-commerce spending is increasing at
15% per year from a level of $1.5 trillion, handily outpacing GDP growth.
Not all countries are growing at the global average, however. Because of the smaller base of people
buying goods online, e-commerce growth in developing markets is much higher with CAGRs of 22-77%
from 2009-2013 (vs. 3-10% for Japan, Western Europe, and US).
18
In Rocket Internet and Kinneviks target markets, e-commerce penetration is currently averaging 2.1%,
compared to China at 5.6% and the US at 7.4%, so there is material upside to capturing a growing
proportion of online spend from a potential population of 5.4 billion people representing $57 trillion in
GDP.
19
We believe the potential for e-commerce share of total commerce in developing countries is actually
much higher than in developed countries, because of significantly lower brick-and-mortar retail space
per capita. In the US there is 46 square feet of retail space per capita, compared to China at 6.4 sqft,
India at 2.0 sqft, Russia at 1.0 sqft, and Nigeria at 0.02 sqft.
Source: Alibaba 2014 IPO Prospectus, globaleconomicanalysis, ventures-africa.com, Cushman & Wakefield
As retail spending per capita grows, the leading online retailers will capture the vast majority of
incremental spend in countries lacking a retail store infrastructure, and thus can grow faster than the
overall online market. Even Amazon, which competes intensely with brick and mortar stores in
developed countries, grew faster than the total e-commerce and retail industry during 2013-2014.
Source: Internetretailer.com
20
So how does one build the leading e-commerce company in a new, untapped market? Perhaps investors
and entrepreneurs can learn a thing or two from studying Amazon, Alibaba, JD and Flipkart
Megatrend #3 Export of proven business models to new markets
There is tremendous demand for e-commerce in countries where western companies, like Amazon,
have not yet entered. Kinnevik and Rocket Internet, despite being wrongly disparaged as a clone
factory, fill a valuable role in building a countrys nascent online ecosystem. Someone, whether it is
Rocket, Amazon, Alibaba, or a venture capital fund, will invest capital wherever it is needed to provide
the online services consumers desperately desire.
The entrepreneurial strategy of creative imitation of internet businesses is an effective and proven
strategy that has a long history of success in many different regions of the world.
Original and imitator company comparison, by region
($ bn)
Original (valuation)
Russia
Yahoo ($41 bn)
Facebook ($219 bn)
Amazon ($176 bn)
Imitator (valuation)
Mail.ru ($3.6 bn)
VK (owned by Mail.ru)
Ozon.ru ($0.7 bn)
China
Latin America
Europe
India
Investors should seriously consider owning those companies that are implementing this strategy in
emerging markets, because they can produce very high returns for long periods of time. If you missed
the first internet wave in 1997 by passing on Amazon and eBay (average annual return 30%+ for 17
years) and also missed the second internet wave in 2001 by passing on Softbank/Alibaba, and
Naspers/Tencent (average annual return 20%+ for 14 years), it may be a mistake to pass on investing in
the third internet wave in 2015 with Kinnevik and Rocket Internet, who are building the next generation
of internet franchises all over the world.
21
Operates in
Europe
Latin America
Africa
Southeast Asia
India
Southeast Asia
Russia & CIS
Latin America
India
Russia & CIS
Europe
Europe
Valuation ($ bn)
6.6
0.3
0.5
1.2
0.4
0.6
0.8
0.9
0.3
1.0
0.5
0.9
Resembles
Zappos
Amazon
Amazon
Amazon
Zalando
Zalando
Zalando
Zalando
Schibsted
Schibsted
Wayfair
Wayfair
The success of the Kinnevik sphere of companies is far from guaranteed, however, with many years of
intense competition before reaching positive cash flow if the companies fall short, shareholders will
suffer. The prices paid for the companies in the portfolio, either directly by Kinnevik or indirectly by
shareholders, will also be a large driver of future returns going forward if the valuations as implied by
the reported net asset value are too optimistic compared to future revenues and cash flows,
shareholders will suffer. Thus, any forecast of KINVs share price must incorporate an analysis and
valuation estimate of the companies comprising the NAV.
In the next section, we present the methodology and rationale behind our 2017 NAV estimate of
446/share, as well as individual analyses of each of the core companies in Kinneviks portfolio.
22
100%
Valuation
(USD)
2014 4Q Valuation
KINV
NAV
Ownership
Contribution
(SEK)
2015-2017 Change
Valuation Change in NAV
Growth
per share
$9,735
$6,572
$2,892
$828
$895
$121
$446
$603
14%
32%
26%
26%
26%
26%
26%
26%
10,620
19,030
6,092
inc. GFG
inc. GFG
inc. GFG
inc. GFG
inc. GFG
$11,986
$9,089
$6,176
$1,306
$1,247
$565
$2,217
$842
13%
32%
24%
24%
23%
26%
25%
22%
12,988
23,996
12,249
inc. GFG
inc. GFG
inc. GFG
inc. GFG
inc. GFG
23%
38%
114%
58%
39%
368%
397%
40%
9
18
22
inc. GFG
inc. GFG
inc. GFG
inc. GFG
inc. GFG
$937
$516
$107
$295
20%
13%
Mixed
29%
833
379
93
737
$1,086
$923
$11
$428
20%
13%
Mixed
29%
1,789
989
93
1,005
16%
79%
3
2
0
1
$1,220
$326
$543
$92
$31
10%
9%
10%
41%
Mixed
739
inc. Lazada
409
292
257
$2,829
$809
$776
$349
$31
10%
7%
8%
30%
Mixed
2,331
449
543
849
257
132%
148%
43%
280%
7
inc. Lazada
0
2
0
$957
$343
$23
$170
$14
31%
16%
88%
29%
Mixed
2,298
425
154
381
115
$3,290
$1,461
$307
$312
$14
31%
16%
61%
29%
Mixed
8,514
1,926
1,543
745
115
244%
326%
1260%
84%
0%
22
5
5
1
0
$6,916
$5,320
38%
30%
22,039
12,865
$11,236
$3,954
38%
30%
35,047
9,839
62%
-26%
47
-11
$2,135
$39
$17
$13
20%
100%
100%
100%
3,358
321
140
106
$2,645
$0
$17
$13
20%
100%
100%
100%
4,359
0
140
106
24%
-100%
0%
0%
4
-1
0
0
$430
$224
$76
$64
$30
$51
31%
33%
25%
39%
100%
100%
1,032
494
151
206
250
424
$725
$224
$76
$140
$30
$51
31%
33%
25%
39%
100%
100%
1,852
609
155
450
250
424
69%
0%
0%
118%
0%
0%
3
0
0
1
0
0
$16
$0
$15,330
100%
100%
130
0
84,370
277
304
$16
$0
$19,127
100%
100%
130
0
123,742
277
446
0%
0%
0
0
45%
142
23
Valuation Methodology
Currency translation - Historical and estimated financial information is presented using the same
reporting currency as used by each individual company. When comparing companies and calculating
each individual companys contribution to Kinneviks NAV, valuations were translated to USD at the
appropriate historical exchange rate. For dates in the future, such as our 2017 valuation estimates, we
used the exchange rate as of February 2, 2015. For example, Jabong reports revenues and EBITDA in
Indian Rupees (INR). Our estimate of Jabongs 2017 revenue is INR 39.1 billion, which implies a valuation
at 3.5x sales multiple of USD $2.2 billion at an exchange rate of 61.75 USD-INR (rate as of February 2,
2015).
For companies with a negative EBITDA estimate in 2017, we chose to value the loss-generating
companies using revenue multiples comparable to publicly traded peers and recent financing rounds of
unlisted peers. In addition, we assumed that Kinnevik's stake would be diluted by the amount of equity
that needs to be raised at the 2017 estimated valuation to offset the cumulative cash deficit incurred by
the end of 2017. Because the companies do not generate cash, the enterprise value was not adjusted by
positive cash balances for purposes of calculating revenue multiples.
For example, in 2017 we forecast that Linio will generate revenue of EUR 352 million, EBITDA loss of 106 million, and incur a cumulative cash deficit of -278 million. Using a 2.0x revenue multiple, our 2017
valuation estimate for Linio is EUR 704 million. Our dilution adjustment assumes that Linio raises EUR
278 million in new equity at a 704 million pre-money valuation, which dilutes Kinnevik's original stake of
9.4% down to 6.7%. Thus, Linios contribution to Kinnevik's NAV in 2017 is 6.7% of EUR 704 million.
For companies with positive EBITDA forecast in 2017, we chose an EV/EBITDA multiple based on an
average of publicly traded peers and EV/EBITDA multiples implied by recent financing rounds of private
peers. For these cash generative companies, we also adjusted enterprise value for net debt/cash and
non-controlling interests.
Telecoms - We chose to value these companies at an EV/EBITDA multiple of 6.5x, slightly higher than
publicly traded peer averages, but below typical acquisition multiples for telecoms at 7.0-8.5x.
Rocket Internet - we valued Rocket Internet with a sum-of-the-parts NAV methodology similar for our
valuation of Kinnevik, but assumed the current market implied premium to NAV for Rockets "platform
value" of USD $2.9 billion remained constant from 2014-2017.
Online classifieds - For EV/EBITDA multiple comparisons, we chose multiples based on a blend of the
mature Schibsted classifieds segment and the faster-growing publicly traded Chinese classifieds
companies.
Online fashion retailers - We determined future EBITDA margin improvement based on Zalando's
historical EBITDA margin experience. Our assumption was that these companies would reach -10%
EBITDA margin at USD $500 million in revenue, and breakeven EBITDA margin at USD $1 billion in
revenue. Certain companies, such as Jabong, were assigned higher revenue multiples than the others to
account for faster growth and larger addressable markets.
Online general merchandise retailers - Similar to the online fashion retailers, we assumed the companies
would reach -10% EBITDA at $500 million revenue and breakeven EBITDA at $1 billion revenue. We
chose a 2.0x revenue multiple based on Amazon and JD.com current multiples.
24
Online home and living retailers - Compared to fashion and general merchandise, home and living
retailers have higher gross margins and higher basket sizes per order, so we assumed these companies
would reach -10% EBITDA at $300 million revenue and breakeven at $500 million in revenue. We chose
a 1.5x sales multiple based on an average of publicly traded peers.
A Final Caveat on Valuation
Valuation is more art than science, particularly so when valuing young, rapidly growing, cash flow
negative companies in the Kinnevik online portfolio. We intended our forecasts and valuation multiples
not to be overly conservative nor overly optimistic, but a best attempt at accurately predicting what will
actually happen in the next three years.
Some (hopefully very few) of Kinnevik's investments will do worse than forecast, and some will do better
than forecast. Even a start-up currently too small to break out separately may end up accounting for the
majority of Kinnevik's NAV. Such is the power law in venture capital investing.
Buying Kinnevik is similar to owning a non-leveraged portfolio of potentially very valuable options
funded by stable, cash-generative businesses. We believe this situation represents low downside and
high upside, and that significant value will be created for shareholders over time.
In the following section, we present our individual company analyses and 2017 valuation estimates to
help readers gain a deeper understanding of Kinneviks underlying portfolio.
25
Rocket Internet
Overview
Rocket Internet (Rocket, or RKET) is a German-based internet platform founded in 2007 by the
Samwer brothers. The company has incubated and maintained interests in a number of international
start-ups (many also owned by Kinnevik) such as HelloFresh, Lazada, Home24 and the Global Fashion
Group. Rocket Internet has been listed on the Frankfurt Stock Exchange since its IPO in October 2014.
Jumia
Hellofresh
Linio
Zalora
Lazada
Namshi
Dafiti
Westwing
Lamoda
Home24
Jabong
Year
Founded
2012
2011
2011
2011
2011
2012
2010
2011
2010
2009
2010
Total funding
by Rocket ( mm)
0.2
0.5
1.4
2.6
2.5
0.8
5
3.3
6.6
9.7
4.3
Total funding
received ( mm)
62
39
120
292
319
47
218
155
219
205
189
Stake-weighted Money-on-money
valuation ( mm)
multiple
57
264x
49
71x
91
63x
131
60x
135
54x
36
44x
177
40x
119
30x
169
29x
247
23x
83
22x
We anticipate the Samwer brothers passion for winning and intense focus on execution will continue to
drive the creation of new successful ventures going forward.
Rocket Internet ownership structure
Kinnevik is the second largest shareholder of Rocket after Global Founders (the Samwers' private
investment vehicle). The significant stake and close relationship with Rocket allow Kinnevik access to
ventures backed by the Rocket platform and selective participation in deals in which the prospects and
valuation makes sense. In addition, Kinnevik contributes expertise in corporate governance, strategy and
public company management that we think complements Rocket Internet's core skills. The rest of the
shareholder base consists of several other long-term partners Rocket has worked with over the years. Its
diverse source of capital provides a solid foundation for Rockets expansion to new areas and
geographies.
27
Competitive Position
Rocket Internets strategy is to export proven business models to new, untapped markets. The vast
majority of Rockets companies are clones of other successful internet businesses. Linio and Lazada are
Amazon clones in Latin America and Southeast Asia, the Global Fashion Group businesses are cloned
from Zalando which is cloned from Zappos, Westwing is a One Kings Lane clone, Wimdu is similar to
Airbnb, etc. The advantage of this strategy is that Rocket avoids technological risk - it does not have to
develop any new technology for its start-ups to succeed. It also eliminates business model risk because
the chosen business models have already proven their potential for scalability and profitability in mature
markets. Rockets superiority in execution is what sets it apart from competitors.
We believe Rocket has developed over the years the following key competitive advantages compared to
a typical venture capital fund.
Sufficient capital base
Due to its track record, Rocket is able to raise funds from many different world-class investors at
premium valuations. In addition to strategic partners such as Kinnevik, Millicom and Access Industries,
notable names include J.P. Morgan, Tengelmann, and Summit Partners. Unlike a typical venture capital
fund which has mandates on stage and exit timing, Rocket has the flexibility to invest across companies
in various stages of growth and over time horizons much longer than 10 years. As a publicly listed
company, Rocket has additional access to permanent sources of capital for funding its ventures. Being
well-capitalized allows Rocket to spend big marketing dollars and invest in infrastructure quickly in order
to gain market share.
Industrialized start-up production process
The graphic below outlines the highly structured process Rocket uses to expedite global execution of its
many start-ups across the world.
28
On average, Rocket founds 10 new companies per year. Rockets highly data-driven new venture
production process enables product development, data analysis, and even marketing to be handled in a
centralized location and quickly rolled out to all of the regions. Rocket constantly recruits founders
from consulting firms, banks and top business schools and sends them to the local country level to build
the business, and build it fast. The end result is Rocket can launch a new venture in less than 100 days
with full functional support and quickly become the first-mover in any new market it sees fit.
Network and synergies
Rockets ownership in a global network of businesses gives it a distinct competitive advantage. There are
four dimensions for Rocket to leverage synergies:
1. Sourcing. By combining the five regional online fashion retailers into Global Fashion Group,
Rocket will benefit from economies of scale in sourcing products from global and private-label
brands. The recently restructured Global Online Takeaway Group can attract more restaurant
partners for each of its individual group members due to scale. More choices for diners reinforce
the network effects which drives more orders from even more customers.
2. Knowledge sharing. Rocket is a self-learning, self-replicating machine that has accumulated
invaluable experiences and best practices that are shared among its portfolio companies. For
example, Zalandos success in building fulfillment infrastructure and creating compelling
customer experiences can be fully integrated into the Global Fashion Group companies. In
furniture and home accessories, Rocket has the capacity to quickly build sisters companies to
Home24 and Westwing in other regions by exporting the infrastructure and knowledge already
learned.
3. Customer acquisition. Companies across multiple product categories can take advantages of
cross-selling and co-marketing opportunities that exist within the network to acquire new
customers and higher share of spend.
4. Talent attraction. A large internet platform such as Rocket can more easily attract top talent
than smaller standalone start-ups, and shift personnel between regions and companies.
As the number of companies within Rocket's sphere grows each year, we anticipate more opportunities
to benefit from such synergies and scale advantages.
Strategic partnerships
Rocket has developed strategic partnerships with a number of telecommunications service providers
such as Millicom, MTN Group, and Philippine Long Distance Telephone Company. These strategic
partners are co-investors in the Regional Internet Groups and add significant value in developing and
distributing Rockets e-commerce apps and mobile payment services in their respective markets.
Retailers Tesco and Rewe Group are co-invested in Rockets e-commerce businesses and help broaden
Rockets merchandise selection and establish its credibility in new markets. By sharing ownership with
variety of other strategic partners/institutions, Rocket gains benefits in distribution, marketing, and
access to capital for its companies.
Valuation
Rockets value comes from two sources: the Net Asset Value of its portfolio and its
platform/management value. To project Rockets future portfolio NAV, we combined all future
individual company values and added the net cash position, which was assumed to remain constant
from 2014-2017. Most of the Proven Winners have co-ownership with Kinnevik; therefore we used
our internal 2017 valuation estimates for these investments. For the rest of the venture portfolio
without disclosed financials, we assumed a 30% total increase in value over 3 years.
29
($ mm)
Proven Winners
Global Fashion Group
Dafiti
Lamoda
Zalora
Namshi
Jabong
Home and Living
Home24
Westwing
Other E-commerce
Lazada
Linio
Jumia
Hellofresh
Delivery Hero
Emerging Stars
FabFurnish
Zanui
foodpanda
Wimdu
CupoNation
Helpling
Lendico
PAYMILL
Zencap
TravelBird
Concepts
EatFirst
ZipJet
Bonalivo
SpaceWays
tripda
Shopwings
Others
Regional Internet Groups
Africa Internet Group
Asia Internet Group
LATAM Internet Group
Mid.East Internet Group
Strategic participations
Other investments
Cash in hand
Liabilities
2014 4Q Valuations
Rocket
100%
Value
Valuation Ownership Contribution
(USD)
(USD)
2015-2017 Comparison
Valuation Growth
$895
$828
$603
$121
$446
23%
24%
25%
34%
21%
$203
$195
$151
$42
$95
$1,247
$1,306
$842
$565
$2,217
20%
22%
21%
34%
20%
$251
$285
$174
$194
$453
39%
58%
40%
368%
397%
$937
$516
50%
34%
$468
$176
$1,086
$923
50%
34%
$542
$314
16%
79%
$1,220
$326
$543
$717
$1,901
24%
35%
29%
52%
30%
$290
$115
$156
$371
$570
$2,829
$809
$776
$933
$2,472
24%
25%
25%
52%
30%
$673
$204
$194
$482
$742
132%
148%
43%
30%
30%
n/a
n/a
$287
$170
$45
$106
$138
$39
$99
$161
26%
31%
50%
52%
40%
40%
56%
50%
74%
16%
n/a
n/a
$143
$89
$18
$42
$77
$19
$73
$26
n/a
n/a
$373
$312
$58
$138
$179
$51
$129
$209
26%
31%
50%
52%
40%
40%
56%
50%
74%
16%
n/a
n/a
$185
$163
$24
$55
$100
$25
$95
$34
n/a
n/a
30%
84%
30%
30%
30%
30%
30%
30%
$23
$24
$21
$19
$17
$23
n/m
78%
95%
86%
91%
66%
90%
n/m
$18
$23
$18
$17
$11
$21
$9
$30
$31
$27
$25
$22
$30
n/m
78%
95%
86%
91%
66%
90%
n/m
$23
$30
$23
$22
$14
$27
$11
30%
30%
30%
30%
30%
30%
n/m
$580
$414
$307
$138
33%
50%
65%
50%
$193
$207
$200
$69
$208
$274
$2,313
($110)
$753
$538
$399
$179
33%
50%
65%
50%
$251
$269
$259
$90
$271
$356
$2,313
($110)
30%
30%
30%
30%
30%
30%
0%
0%
33%
$6,788
$9,039
NAV Premium/Discount
Implied Platform Value
Market Cap
KINV % interest
KINV interest value ($ mm)
43%
$2,947
$9,735
13.15%
$1,280
33%
$2,947
$11,986
13.15%
$1,576
30
Based on the difference between Rockets current market cap and our estimate of the current NAV, the
market-implied value for Rockets business-building platform is approximately USD $2.9 billion. It is
difficult to pinpoint an exact value for the platform. However, we think the $2.9 billion implied value for
the platform is justified by Rockets future value of high quality business creation (10+ per year), unique
set of competitive advantages from global synergies and scale, and a passionate and committed
leadership team to drive performance in the underpenetrated emerging markets that have huge
potential. Therefore we consider Rocket to be trading within the reasonable range of fair value at
current share price.
Rockets market cap in 2017 is then estimated by adding its projected Net Asset Value in 3 years to the
platform value, which was kept constant at the current market implied value. As a result, the estimated
increase in Rockets valuation only reflects the increase in value of the portfolio companies.
31
Zalando
Overview
Zalando is a pure-play online fashion retailer in Europe that attracts 100 million website visits per month
and 14 million active customers. The company was founded by Rocket in Germany in 2008 and currently
operates in 15 European countries.
Zalando managed to become the largest online fashion retailer in Europe only 6 years after inception.
On the surface, Zalandos success is due to its unashamed imitation of the US retailer Zappos business
model. Just like Zappos, Zalando started the site as an online shoe store and expanded quickly into other
fashion categories. Management is as focused as Zappos to offer the best possible customer service by
building an efficient fulfillment and delivery infrastructure. However, Rocket's superior execution
capabilities certainly played a big part in Zalando's success. For example, Zalando offers a highly
customized shopping experience for each of the 15 European countries in terms of local language
assistance, local brand offerings, and payment methods. The company also spent an astounding EUR
850 million on marketing from 2011-2014 that pushed Zalandos brand awareness to 88% in key markets.
In 2014, Zalando grew revenues 26% year-over-year to EUR 2.2 billion and produced its first positive
adjusted operating profit of EUR 82 million and an EBIT margin of 3.7%. Based on the market cap as of
the valuation date, Zalando is valued at USD $6,572 million, at an EV/Sales multiple of 1.9x.
Competitive Position
Zalando faces intense competition not only from online retailers but also traditional brick-and-mortar
retailers that have increasingly stronger online presence, such as Nike, H&M, and Zara.
32
The closest European pure-play online fashion retailer peers are Asos and Yoox. Yoox runs multiple ecommerce sites in addition to providing the IT and logistical infrastructure to multiple luxury brands
such as Armani and Diesel. Asos is a global online fashion retailer primarily aimed at young adults in
their 20s. Asos enjoys higher gross margins than Zalando because of its own private-label brand that
makes up half of its revenue. It has an established market-leading position in the UK and is expanding
further into key European markets Zalando is currently serving.
European online fashion competitors
Zalando
Year Founded
2008
Monthly Unique Visitors (mm)
14.4
Facebook Likes (mm)
2.9
LTM Revenue ($ mm)
2,895
Gross Margin
43%
Asos
2000
9.0
3.6
1,525
50%
Yoox Group
2000
1.3
0.7
603
41%
We do not see Asos as particularly threatening to Zalandos revenue growth because 1) Asos has a much
more narrower demographic focus 2) Zalando has built a much stronger distribution infrastructure in
the DACH (Germany, Austria, Switzerland) region and 3) the expected conversion from physical store to
online channels offers ample growth prospects that allows multiple winners to co-exist in the European
online fashion space.
Valuation
Zalando management provided guidance of 20-25% revenue growth in 2015, which we think is
achievable. We believe the increase in active customers in the next few years will likely lag historical
levels, resulting in deceleration of growth. On the bright side, we think the huge scale of the business
will continue to drive further cost efficiencies resulting in lower selling and distribution costs as a
percentage of revenues.
33
Our financial projection below reflects the expected growth in both customers and online fashion
shopping adoption, slightly lower gross margins and improving EBIT margins.
Zalando financial projection
2010
2.5
154
2466%
2011
4.8
92%
106
73%
510
231%
2012
9.2
92%
126
19%
1,159
127%
2013
13.1
42%
135
7%
1,762
52%
2014
14.7
12%
151
12%
2,214
26%
2015 E
15.7
7%
169
12%
2,653
20%
2016 E
16.7
6%
184
9%
3,066
16%
2017 E
17.5
5%
197
7%
3,442
12%
73
47%
-87
-57%
-10
-6%
1
-96
-63%
234
46%
-272
-53%
-24
-5%
2
-293
-58%
535
46%
-561
-48%
-63
-5%
6
-618
-53%
715
41%
-734
-42%
-105
-6%
10
-829
-47%
959
43%
-794
-36%
-109
-5%
6
-897
-40%
1,109
42%
-925
-35%
-145
-5%
8
-1,063
-40%
1,300
42%
-1,038
-34%
-162
-5%
9
-1,191
-39%
1,449
42%
-1,131
-33%
-187
-5%
10
-1,308
-38%
-23
-15.1%
-59
-11.6%
-84
-7.2%
-114
-6.5%
62
2.8%
$6,572
46
1.7%
108
3.5%
141
4.1%
$9,089
62
Gross profit
Gross margin
Selling and distribution costs
as % of revenue
Administrative expenses
as % of revenue
Other operating income & expenses
Total OpEx
as % of revenue
EBIT
EBIT Margin
Valuation ($ mm)
2.0x
1.15
$7,916
$1,173
$9,089
Kinnevik % interest
2017 KINV interest value ($ mm)
32.0%
$2,912
34
Zalando is currently trading at a slightly lower EV/Sales multiple compared to its peers.
Online fashion retailers comparison
Enterprise
LTM
Value
Revenue
($ mm)
Vipshop
$12,570
$3,065
ASOS plc
$3,863
$1,525
Yoox Group
$1,277
$603
Boohoo.com
$392
$193
Zulily
$1,990
$1,066
Average
Zalando
$5,446
% YOY
Growth
113%
27%
15%
27%
84%
53%
EBITDA
Margin
3.8%
5.1%
8.0%
10.0%
2.5%
5.9%
25.7%
4.9%
$2,895
EV/S
4.1x
2.5x
2.1x
2.0x
1.9x
2.5x
Active Revenue/
Customers Customer
9.5
$323
9.0
$169
1.3
$464
2.9
$67
4.5
$237
$237
1.9x
14.4
$201
We can think of several reasons why Zalando deserves a premium relative to peers, such as its marketleading position in Europe and the scale of its infrastructure. However, for our 2017 valuation of Zalando
we assigned a conservative 2.0x sales multiple which is supported by the companys growth
expectations. We forecast Kinneviks stake in Zalando to be worth USD $2.9 billion in 2017.
Management and Ownership Structure
Co-founders Robert Gentz and David Schneider are both graduates of WHU Otto Beisheim School of
Management in Germany. Oliver Samwer, who is also an alumnus of the school, offered them positions
at Rocket Internet after the duos failed attempt to start a Facebook clone in Latin America. From within
Rocket, Gentz, Schneider, and Rubin Ritter co-founded an online shoe retailer, which eventually became
Zalando.
Zalando ownership structure
10.0%
Kinnevik
11.2%
32.0%
3.2%
Holtzbrinck Ventures
5.1%
Tengelmann
Len Blavatnik
6.9%
Other Shareholders
15.0%
7.1%
9.4%
35
Timeline
2008 Zalando founded as an online shoe retailer in Germany within Rocket Internet.
2009 Kinnevik partnered with Rocket Internet.
2011 Kinnevik invested SEK 828 million in Zalando.
2012 Kinnevik acquired shares in Zalando from Rocket Internet and Zalando management for a
total purchase price of EUR 206 mm.
2013 Kinnevik invested SEK 855 million in Zalando. In August, Kinnevik signed an agreement with
Rocket Internet to become the largest owner in Zalando, with 36% of the capital and votes.
2014 Zalando IPO priced at EUR 5.3 billion in Sep 2014. Kinneviks ownership stake in Zalando
becomes 32.0% after the IPO, excluding dilution from potential over-allotment.
36
Similar to Zalando, the five regional businesses were incubated individually within Rocket Internet from
2011 to 2012. They were combined into GFG in September 2014 (pending final closing) and are expected
to deliver synergies by leveraging economies of scale in sourcing and consolidating operating resources.
We believe the GFG companies have strong potential to grow into Zalando-size businesses in their
respective regions and create significant value for both Kinnevik and Rocket Internet shareholders.
Global Fashion E-commerce Market
According to a recent McKinsey report, the online channels of the global clothing and footwear market
have been growing 3 to 4 times faster than offline channels.
37
Fashion is an attractive sector of the e-commerce market because of its relatively early adoption, high
gross margins and logistical efficiencies. We believe the online fashion e-commerce market will continue
its rapid growth, especially in the GFG emerging markets as growth in internet penetration and online
shopping accelerates.
Competitive Positions
With most competitors arriving earlier in the game, the GFG businesses were able to disrupt into top 3
market positions in their respective regions without first-mover advantage.
38
Monthly
Unique
Visitors
(millions)
Facebook
Likes
(millions)
Dafiti
2011
25
6.6
134
Netshoes
2000
17
9.4
26
122
Yes
2000+
38
Yes
100+
India
Jabong
2012
24
3.6
14
10
Yes
1700+
Myntra
2007
12
2.7
39
28
Yes
650+
Lamoda
2011
n/a
n/m
111
149
Yes
1000+
Wildberries
2005
n/a
n/m
71
64
n/a
1000+
Kupivip.ru
2008
n/a
n/m
282
445
No
1500+
Russia
Indonesia
Zalora
2012
20
5.9
56
98
Yes
500+
qoo10
2010
n/a
0.3
146
210
No
n/a
Berrybenka
2011
n/a
0.5
319
466
Yes
800+
2011
n/a
0.7
146
150
Yes
500+
Markavip
2010
n/a
1.4
212
422
No
n/a
Source: Kinnevik and Rocket data, Alexa, SimilarWeb, Facebook, news articles
We believe this success is due to Rocket Internets operational expertise in scaling e-commerce
businesses in a speedy fashion. In addition to executing all of the best practices borrowed from Zalando
in terms of building fulfillment infrastructure and creating compelling customer experiences, the GFG
businesses really pushed above and beyond in their local markets to fight for market share. For example,
most products on Jabong.com are delivered for free in India except for a convenience fee of Rs. 49 (USD
$0.80) charged for cash-on-delivery orders, whereas Jabongs rival Myntra would charge Rs. 99 (USD
$1.60) shipping fee unless the total order amount is Rs. 999 (USD $16.20) or more. Another example Namshi is trying to gain a competitive edge by offering same and next day delivery in Saudi Arabia. In
comparison, delivery generally takes 3 6 working days for Zalando in the UK.
The Global Fashion Group faces many unique challenges in the e-commerce markets that they serve poor logistics infrastructure, low credit card penetration, cash on delivery payment preference, and
fragmented markets. However, we believe the group can weather through these challenges and fend off
competition with the advantages built upon scale, experience and a large capital base.
Valuation
Currently, the GFG companies are all booking losses as they fight for market share. We expect the losses
to continue as they continue growing transaction volume and active customers until revenue reaches
USD $1 billion or more. Therefore we value them on a sales multiple basis.
39
Vipshop
ASOS plc
Yoox Group
Boohoo.com
Zalando
Zulily
Average
Dafiti
Jabong
Lamoda
Zalora
Namshi
Group Total
Enterprise
LTM
Value
Revenue
$12,570
$3,065
$3,863
$1,525
$1,277
$603
$392
$193
$5,446
$2,895
$1,990
$1,066
$895
$446
$828
$603
$121
$2,892
$238
$193
$238
$129
$47
$845
% YOY
Growth
113%
27%
15%
27%
26%
84%
48.7%
EBITDA
Margin
3.8%
5.1%
8.0%
10.0%
4.9%
2.5%
5.7%
36%
169%
68%
44%
224%
-40.0%
-37.1%
-35.3%
-76.2%
-9.0%
Active
Revenue/
2017
LTM EV/S 2017 EV/S
Customers Customer
Valuation
9.5
$323
4.1x
n/a
n/a
9.0
$169
2.5x
n/a
n/a
1.3
$464
2.1x
n/a
n/a
2.9
$67
2.0x
n/a
n/a
14.4
$201
1.9x
2.0x
$9,089
4.5
$237
1.9x
n/a
n/a
$225
2.4x
2.1
n/a
1.8
1.6
0.2
5.7
$114
n/a
$131
$83
$229
$115
3.8x
2.3x
3.5x
4.7x
2.6x
3.4x
3.0x
3.5x
3.0x
3.0x
3.5x
$1,247
$2,217
$1,306
$842
$565
$6,177
Comparable companies in relatively more mature markets such as ASOS and Zalando trade at 1.9-2.5x
sales, whereas the Chinese flash sales site Vipshop trades at 4.1x sales, although with a much higher
revenue growth rate. Given the GFG companies better growth prospects compared to its more mature
peers, as well as the groups scale advantages after global integration, we consider 2017 sales multiples
of 3.0x 3.5x reasonable. We forecast Kinneviks stake in Global Fashion Group to be worth USD $1.6
billion in 2017.
Dafiti financial projection
(BRL mm, except per customer)
2012
1,039
215
224
-169
-75%
2013
1,632
57%
257
19%
419
88%
2014 E
2,095
28%
272
6%
570
36%
2015 E
2,619
25%
286
5%
748
31%
2016 E
3,143
20%
300
5%
943
26%
2017 E
3,615
15%
315
5%
1,139
21%
-205
-49%
194
-228
-40%
85
$895
-225
-30%
-140
-189
-20%
-328
-114
-10%
-442
$1,247
3.0x
2.74
$1,247
26.1%
23.1%
$288
40
2012
2013
3.4
1,301
1,433
4,385.7
206%
-2,876
-201%
-2,492
-57%
7,775
2014 E
9.4
180%
1,250
-4%
11,798
169%
2015 E
16.0
70%
1,250
0%
20,056
70%
2016 E
24.1
50%
1,250
0%
30,084
50%
2017 E
31.3
30%
1,250
0%
39,109
30%
-4,381
-37%
7,028
$446
-5,442
-27%
1,587
-5,154
-17%
-3,568
-2,790
-7%
-6,358
$2,217
3.5x
61.75
$2,217
26%
24.9%
$579
2012
419
3,522
1,476
-1,604
-109%
2013
1,088
160%
4,733
34%
5,150
249%
2014 E
1,823
68%
5,479
16%
9,991
94%
2015 E
2,462
35%
6,027
10%
14,837
49%
2016 E
3,200
30%
6,630
10%
21,216
43%
2017 E
4,000
25%
7,293
10%
29,173
38%
-1,921
-37%
2,608
-3,525
-35%
1,696
$828
-3,751
-25%
-2,056
-3,243
-15%
-5,299
-1,542
-5%
-6,840
$1,306
3.0x
67.00
$1,306
26%
24.2%
$316
41
2012
450
79
36
-69
-194%
2013
1,023
127.3%
67
-15%
69
93%
2014 E
1,564
52.9%
63
-6%
99
44%
2015 E
2,190
40.0%
63
0%
139
40%
2016 E
2,956
35.0%
63
0%
188
35%
2017 E
3,843
30.0%
63
0%
244
30%
-68
-99%
91
-76
-76%
96
$603
-85
-61%
11
-87
-46%
-76
-76
-31%
-152
$842
3.0x
1.15
$842
26.1%
21.6%
$182
2012
36
2013
76
453
700
55%
53.2
226%
16
-59
-360%
-49
-93%
18
2014 E
205
170%
841
20%
172
224%
2015 E
307
50%
925
10%
284
65%
2016 E
430
40%
999
8%
430
51%
2017 E
559
30%
1,059
6%
593
38%
-16
-9%
27
$121
-14
-5%
12
-4
-1%
8
18
3%
26
$565
Revenue Multiple
Exchange Rate (USD-AED)
2017 Namshi Valuation ($ mm)
KINV % interest
2017 KINV interest value ($ mm)
3.5x
3.67
$565
26%
$147
42
Dafiti
Jabong
Co-Founders
Philipp Povel
Malte Huffmann
Thibaud Lecuyer
Malte Horeyseck
Experience
Founder of MyBrands sold to Zalando
Founder of MyBrands sold to Zalando
JP Morgan, INSEAD
Siemens, Harvard Business School
Arun C Mohan
Praveen Sinha
IDC, INSEAD
Founder of AquaBrim, McKinsey, Microsoft
Zalora
Harry Markl
McKinsey, Siemens
Cooper McGuire
Goldman Sachs, Viet Thai International
Magnus Grimeland McKinsey, Rocket Internet
Namshi
Hosam Arab
Faraz Khalid
Hisham Zarka
26.10%
43.0%
Kinnevik
Rocket Internet AG
Access Industries
23.5%
Other Shareholders
7.4%
Since launch in 2011 and 2012, the five GFG companies have attracted funding in excess of EUR 1 billion
from Kinnevik, Access Industries, Summit Partners, Verlinvest, Ontario Teachers' Pension Plan,
Tengelmann and a number of other well-known investors. Notably, the companies even attracted
funding from government entities such as CDC Group, a Development Finance Institution owned by the
UK Government and International Finance Corporation, a member of the World Bank Group. The
43
financial backing from these blue chip investors demonstrates a healthy vote of confidence in the future
of the GFG businesses.
Timeline
GFG
2014 The five businesses were combined to create Global Fashion Group. All rulings by fiscal
authorities and all antitrust approvals have been received late 2014.
2015 Completion of the remaining roll-up transactions is expected in Q1 2015.
Dafiti
2011 Dafiti first opened in Brazil and later expanded to four other Latin American countries.
The companys initial $50 mm in funding was provided by Rocket Internet.
2012 J.P. Morgan Asset Management invested $45 million (BRL $90 million).
2012 Closed a new round of financing worth $65 million funded by Quadrant Capital Advisors
($32 million), Kinnevik, Summit Partners and other investors.
2013 Received $10 million from Mexicos Leon Group, a shoe brand consortium.
2013 New investment of $70 million from the Ontario Teachers Pension Plan.
2014 Received investment of 15 million from International Finance Corporation.
Jabong
Lamoda 2011
2012
2013
2013
2014
Zalora
2012
2012
2013
2013
2013
Namshi
44
Home24
Overview
Home24, founded in 2010, is an online retailer of furniture and home products. As of 2014 4Q, the
company operates in 7 core countries in Western Europe, and is expanding internationally to Brazil,
Uruguay and Paraguay under the Mobly brand. The company operates an inventory-based business
model, with proprietary logistics infrastructure and sourcing relationships.
In 2014, we estimate Home24 will grow revenues 90% year-over-year to EUR 176 million and produce
EBITDA losses of EUR -48 million, at an EBITDA margin of -27%. Based on the latest funding round in
December 2014, Home24 is valued at USD $937M, a sales multiple of 4.1x.
Competitive Position
The online furniture space in Western Europe is highly fragmented, with numerous start-ups carving out
niches across the premium/discount spectrum and flash sales/non-flash sales formats. Incumbent IKEA
is also ramping up its omni-channel sales. Home24 takes a middle-of-the-road approach with everyday,
affordable, yet fashionable furniture marketed without using flash sales or curated promotions.
45
In its core country Germany, Home24's website traffic ranking is in a leading position compared to Roller
and Monoqi (Ikea.com German website not ranked on Similarweb).
Similarweb country rank
Germany
Home24
475
Roller
801
Westwing
1,245
Monoqi
1,566
Fashionforhome
3,702
Avandeo
60,839
Livingo
67,992
Valuation
Investors are quite optimistic about Home24's prospects, as demonstrated by the December 2014
financing round of EUR 16 million at a sales multiple of 4.1x. The 2014 3Q customer and financial data
also supports a bullish view as active customers grew 58% and GMV was up 77%.
Home24 customer data, 2014 T9M vs. 2013 T9M
(000s, except GMV)
Total Customers
% growth
Orders
% growth
Active Customers
% growth
GMV ( mm)
% growth
46
Our financial projection for Home24 assumes high double digit customer growth and flat revenue per
customer. We forecast Home24s EBITDA margin to reach breakeven in 2017, at a lower revenue level
than our breakeven revenue estimates for general merchandise B2C companies, because of the higher
revenue per order and gross margin for home furnishing retailers. We estimate fair value for Home24 in
2017 to be USD $1.1 billion, based on a 1.5x sales multiple.
Home24 financial projection
(EUR mm, except per customer)
2012
287
216
62
-81
-130%
21
2013
435
52%
213
-1%
93
49%
2014 E
761
75%
232
9%
176
90%
2015 E
1,294
70%
232
0%
300
70%
2016 E
1,941
50%
232
0%
450
50%
2017 E
2,718
40%
232
0%
629
40%
2018 E
3,533
30%
232
0%
818
30%
2019 E
4,593
30%
232
0%
1,064
30%
-38
-41%
34
-48
-27%
55
$937
-30
-10%
25
-22
-5%
3
0
0%
3
$1,086
41
5%
44
53
5%
97
1.5x
1.15
$1,086
20.0%
$217
Based on our 2017 revenue forecast of EUR 629 million, a sales multiple of 1.5x seems reasonable, given
that Wayfair, the closest comparable to Home24, is currently priced at a 1.5x sales multiple with 2014
revenue of $1.3 billion.
Online home furnishings retailer comparison
Market
Cap
($ mm)
Wayfair
One Kings Lane
Overstock.com
Williams-Sonoma
Restoration Hardware
Average
2,393
912
547
7,839
3,470
2014
% YOY 2014
Revenue Growth EBITDA
1,319
450
1,497
4,700
1,865
EBITDA
Margin
EV/S EV/EBITDA
Active
Revenue /
Customers Customer
44%
50%
15%
7%
20%
27%
-63
n/a
34
644
485
-5%
n/a
2%
14%
26%
9%
1.5x
1.6x
0.5x
1.6x
1.9x
1.4x
n/m
n/a
21.1x
12.0x
7.1x
13.4x
3.2
n/a
7.3
n/a
n/a
$412
n/a
$205
n/a
n/a
$309
Home24
937
231
90%
Westwing
516
256
75%
Source: Company filings, Deerwood estimates
*Estimated figures if official financials unavailable
*Active customers in millions, Revenue/Customer in $
-62
-77
-27%
-30%
4.1x
2.0x
n/m
n/m
0.76
0.76
$303
$337
47
It is interesting to note that the two US brick-and-mortar companies, Williams-Sonoma (51% of total
sales online) and Restoration Hardware (47% of total sales online) garner higher sales multiples than the
faster-growing purely online furniture retailers Wayfair and Overstock.com. In the home and furnishing
space, it seems that the market values profitability over sales growth, in contrast with how the market
prices general merchandise B2C online retailers such as Amazon and JD.com.
Management and Ownership Structure
Dr. Phillip Kreibohm, Co-Founder and Managing Director. Responsible for Assortment, Product
Development & Sourcing. Previous experience with The Boston Consulting Group and Freshfields.
Domenico Cipolla, CEO. Responsible for Overall Strategy & Operations. Previous experience with The
Boston Consulting Group, L'Oreal, and Cinven Private Equity.
Constantin Eis, Managing Director. Responsible for Marketing & Finance. Previous experience with
Roland Berger Strategy Consultants, Credit Suisse, Bertelsmann.
Home24 ownership structure
30.50%
Rocket
49.50%
Kinnevik
Other investors
20%
Timeline
2009 Home24 founded by Dr. Philipp Kreibohm.
2014 Valued at EUR 498M in July.
2014 Raised EUR 16M at EUR 815M valuation in December.
Source: Kinnevik, Rocket Internet data
48
Westwing
Overview
Westwing Home and Living, founded in 2011, is an online "shoppable magazine" and curator of higherend furniture and home accessories. The company's target demographic and positioning is similar to
One Kings Lane and Wayfair's premium brands. Westwing operates in 15 countries across Europe, Russia
and Brazil, and has a zero-inventory business model, sourcing products from over 3,000 suppliers with
proprietary logistics assets and supply chains.
In 2014, we estimate Westwing will increase revenues 75% year-over-year to EUR 196 million and
produce EBITDA loss of EUR -59 million at an EBITDA margin of -20%. Based on the latest funding round
in December 2014, Westwing is valued at USD $516M, a sales multiple of 2.0x.
Competitive Position
On the premium/discount, impulse-buying/need-based buying spectrum, Westwing is grouped in the
same category as Fab, Monoqi, Fashion for HOME, and One Kings Lane.
49
In its core German market, Westwing is ahead of other flash-sale, curated online furnishing sites in
terms of traffic ranking, but behind Roller and Home24.
Similarweb country rank
Germany
Home24
475
Roller
801
Westwing
1,245
Monoqi
1,566
Fashionforhome
3,702
Avandeo
60,839
Livingo
67,992
Valuation
Our valuation approach to Westwing is similar to Home24, given that both companies growth
trajectories are similar. In the first 9 months of 2014, Westwing orders were up 85%, active customers
were up 74%, and GMV was up 63%.
Westwing Customer Data, 2014 T9M vs. 2013 T9M
(000s, except GMV)
2013 T9M 2014 T9M
Total Customers
480
980
% growth
104%
Orders
800
1,482
% growth
85%
Active Customers
390
680
% growth
74%
GMV ( mm)
83
135
% growth
63%
Source: Rocket Internet, Kinnevik data
50
Because 2014 3Q financials were not released for Westwing, but were released for Home24, our nearterm forecast for Westwing is subject to a higher degree of uncertainty, particularly for 2014 estimates.
We forecast that Westwing revenues will grow between 30-50% per year from 2015-2017, at which
point EBITDA margins will reach breakeven at revenue of EUR 535 million. At 1.5x sales, Westwing
would be valued at USD $923 million in 2017.
Westwing financial projection
(EUR mm, except per customer)
2012
226
203
46
-62
-135%
9
2013
447
98%
251
24%
112
145%
2014 E
760
70%
258
3%
196
75%
2015 E
1,140
50%
258
0%
294
50%
2016 E
1,596
40%
258
0%
412
40%
2017 E
2,075
30%
258
0%
535
30%
2018 E
2,489
20%
258
0%
642
20%
2019 E
2,987
20%
258
0%
771
20%
-40
-35%
30
-59
-30%
42
$516
-29
-10%
12
-21
-5%
-8
0
0%
-8
$923
32
5%
24
39
5%
62
1.5x
1.15
$923
13.0%
$120
It is interesting to compare Home24 and Westwings latest financing valuations. Despite having similar
growth and revenue levels, in December 2014 Home24 was able to raise financing at twice the sales
multiple of Westwing, (4.1x compared to 2.0x), albeit both rounds were relatively small amounts of EUR
16 million and EUR 25 million, respectively.
Online home furnishings retailer comparison
Market
Cap
($ mm)
Wayfair
One Kings Lane
Overstock.com
Williams-Sonoma
Restoration Hardware
Average
2,393
912
547
7,839
3,470
2014
% YOY 2014
Revenue Growth EBITDA
1,319
450
1,497
4,700
1,865
EBITDA
Margin
EV/S EV/EBITDA
Active
Revenue /
Customers Customer
44%
50%
15%
7%
20%
27%
-63
n/a
34
644
485
-5%
n/a
2%
14%
26%
9%
1.5x
1.6x
0.5x
1.6x
1.9x
1.4x
n/m
n/a
21.1x
12.0x
7.1x
13.4x
3.2
n/a
7.3
n/a
n/a
$412
n/a
$205
n/a
n/a
$309
Home24
937
231
90%
Westwing
516
256
75%
Source: Company filings, Deerwood estimates
*Estimated figures if official financials unavailable
*Active customers in millions, Revenue/Customer in $
-62
-77
-27%
-30%
4.1x
2.0x
n/m
n/m
0.76
0.76
$303
$337
51
30.50%
Rocket
49.50%
Kinnevik
Other investors
20%
Timeline
2011 Westwing founded by Stefan Smaller and Delia Fischer.
2012 Raised USD $50 million from Rocket, Kinnevik, Access Industries, Summit Partners, and
Holtzbrinck.
2013 Tengelmann Ventures invested an undisclosed amount.
2014 Raised EUR 72 million from Odey, Fidelity, and Tengelmann in April.
2014 Valued at EUR 353 million in May.
2014 Raised EUR 25 million and valued at EUR 449 million in December.
Source: Kinnevik, Rocket Internet data
52
Qliro
Overview
Qliro Group (formerly CDON Group) is a Swedish company that owns a portfolio of e-commerce
operators in the Nordic region with 4.2 million active customers. Qliro Group divides its operations into
four segments: Entertainment, Fashion, Sports & Health and Home & Garden.
In 2014, the Group grew revenues 13% year-over-year to SEK 5.0 billion and generated operating profit
(EBIT) of SEK 33 million at an EBIT margin of 0.7%. Qliro is valued at USD $295 million, at an EV/Sales
multiple of 0.4x.
Competitive Position
Qliro Group has the #1 position in the fashion (Nelly), sports nutrition (Gymgrossisten), and general
merchandise/marketplace (CDON) segments in the Nordic region.
Facebook Likes
(thousands)
583
69
22
21
CDON.com
Webhallen.se
Adlibris.se
Ginza.se
Alexa Rank in
SimilarWeb
Sweden
Rank in Sweden
81
137
63
326
168
211
511
825
GYMGROSSISTEN.COM
MM Sports.se
Gymvaruhuset.com
137
35
4
449
2,118
5,474
363
921
5880
Nelly.com
Stylepit.se
Bubbleroom.se
785
208
63
397
1294
1774
226
931
923
53
In 2014, the group launched the new online payment system Qliro Payment Solution. Management
considers payments to be an important strategic investment and expects it to reach profitability in 2016
and contributes SEK 100mm in pretax profit in 2018. Assuming 50% utilization in the group member
websites, Qliro will handle transactions for over SEK 3 billion in 2017. We believe managements goal is
achievable and a successful execution can provide potential upside to earnings.
Valuation
Qliro currently trades at a significantly discount to its global peers based on an EV/Sales multiple due to
deterioration in operating margins over the past four years.
Online retailer comparison
($ mm)
Enterprise
LTM
Value
Revenue
% YOY
Growth
EBITDA
Margin
EV/S
Active
Revenue/
Customers Customer
Amazon
165,212
88,988
20%
7%
1.9x
270
$330
JD.com
Vipshop
30,700
12,570
18,000
3,065
57%
113%
4%
4%
1.7x
4.1x
46
9.5
$391
$323
ASOS plc
3,863
1,525
27%
5%
2.5x
9.0
$169
Yoox Group
1,277
603
15%
8%
2.1x
1.3
$464
Boohoo.com
392
193
27%
10%
2.0x
2.9
$67
1,990
1,066
84%
3%
1.9x
4.5
$237
49.1%
6%
2.3x
13%
1%
0.4x
Zulily
Average
Qliro
261
609
$283
4.2
$145
Our financial projection assumes that Qliro Group will continue to grow active customers 5% per year
with increasing margins due to logistical efficiency improvement initiatives. We think the group is
undervalued on a sum-of-the-parts basis due to multiple brands leading market position and Qliro
Payment Solutions earning potential. We believe a conservative 0.5x EV/Sales multiple in 2017 is
justified considering the expected EBIT margin improvement and low growth prospects in the markets
that Qliro Group members serve.
54
2009
2010
2011
2012
2013
3.8
1,746
2,210
27%
3,404
54%
4,462
31%
4,441
0%
2014
4.2
11%
1,200
1%
5,015
13%
Gross profit
Gross Margin
348
420
19%
587
17%
471
11%
594
13%
711
14%
781
15%
856
15%
938
16%
125
135
6.1%
129
3.8%
-174
-3.9%
-48
-1.1%
33
0.7%
9
1.2%
19
2.2%
30
3.2%
1,184
2015 E
4.4
5%
1,212
1%
5,318
6%
2016 E
4.6
5%
1,224
1%
5,640
6%
2017 E
4.8
5%
1,236
1%
5,981
6%
0.5x
8.24
$363
$65
$428
KINV % interest
2017 KINV interest value ($ mm)
28.5%
$122
Kinnevik
28.5%
47.8%
InvescoFunds
7.9%
HendersonFunds
Other shareholders
5.6%
5.0% 5.2%
Source: Qliro Group data
55
Timeline
1999
2007
2008
2008
2010
2010
CDON Group was demerged from Modern Times Group and listed on Nasdaq OMX.
2011
2012
2013
2013
2014
Kinnevik invested SEK 241 mm to support the launch of the Qliro payment service solution.
2014
2015
56
Lazada
Overview
Lazada, founded in 2012, is an online general merchandise retailer in Southeast Asia. As of 2014 4Q, the
company operates in Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam, with 559
million addressable customers. The goal of the company is to control the Southeast Asian eCommerce
ecosystem as Alibaba does in China, by offering multiple operating models in B2C, Marketplace, C2C,
Payment, and Fulfillment.
For 2014, we forecast Lazada to grow revenues 175% year-over-year to EUR 156 million and generate
EBITDA loss of EUR -125 million at an EBITDA margin of -80%. Based on the latest funding round in
November 2014, Lazada is valued at USD $1.22 billion, at a sales multiple of 6.0x.
Competitive Position
There is a high level of competition for e-commerce in Southeast Asia, with established players and new
entrants fighting for market share via B2C and C2C models, both across the region and within individual
countries. A number of e-commerce start-ups (Multiply.com, 123.vn, Project Lana) have already folded.
On the B2C side, Lazada competes with Bhinneka, Rakuten, Tokopedia (backed by Softbank), and Blibli.
On the C2C/classifieds side, Lazada competes with Kaskus, OLX (backed by Naspers), and ChoDienTu
(backed by eBay) in Vietnam. There are also rumors Alibaba will enter the region, after acquiring a 10%
stake in logistics provider Singapore Post in March 2014.
57
In general, the three factors of success for building the #1 e-commerce retailer are being the first mover,
scale/capital, and execution. Although Lazada is a relatively new entrant, we believe it has ample capital
and operational experience (with the help of Rocket) to become the B2C leader in Southeast Asia.
Lazada engagement metrics, 2014 March
Even compared to C2C classified sites with much longer history of operation, Lazada is among the
highest trafficked websites for e-commerce, and is the only company with prominent positions in all 6
countries.
Similarweb country rank
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
Lazada
12
13
11
61
21
25
OLX
15
9
Kaskus
7
Tokopedia
27
Rakuten
199
157
239
BliBli
123
Bhinneka
101
58
Valuation
The last financing round for Lazada was in November 2014, when Rocket Internet, Verlinvest, Kinnevik,
and Temasek contributed a total of EUR 200 million at EUR 1.0 billion valuation. The previous financing
round in 2014 February valued the company at EUR 504 million, which implies that Lazadas value is
growing faster than 100% per year.
Lazadas customer metrics for the first six months of 2014 support a growth rate of well over 100%, as
transactions were up 313% and active customers were up 251% year-over-year.
Lazada customer data, 2014 1H vs. 2013 1H
(000s, except GMV)
2013 1H
2014 1H
Total Customers
441
1,760
% YOY growth
299%
Transactions
446
1,840
% YOY growth
313%
Active Customers
402
1,410
% YOY growth
251%
GMV ( mm)
24
73
% YOY growth
204%
Source: Rocket Internet data
Our financial projection for Lazada assumes that the company will continue to grow rapidly until it
reaches revenue of EUR 1.2 billion in 2018, at which point EBITDA turns breakeven.
Lazada financial projection
(EUR mm, except per customer)
2012
132
2013
774
486%
73
57
-51
-89%
183
2014 E
2,516
225%
62
-15%
156
175%
2015 E
6,289
150%
56
-10%
351
125%
2016 E
14,150
125%
50
-11%
703
100%
2017 E
24,762
75%
50
0%
1,230
75%
2018 E
37,143
50%
50
0%
1,845
50%
2019 E
48,286
30%
50
0%
2,399
30%
-125
-80%
365
$1,220
-141
-40%
224
-70
-10%
154
-62
-5%
93
$2,829
-92
0%
93
0
0%
93
2.0x
1.15
$2,829
10.0%
$283
59
Our choice of 2.0x revenue multiple in 2017, which is equivalent to Amazons current valuation, is on the
conservative side, given that Flipkart (India) and Souq (Middle East) have reportedly raised financing at
an estimated 5.0-7.0x revenues.
Asia B2C online retailer comparison
($ mm)
Amazon
JD.com
Flipkart
Souq
Average
Lazada
Market
Cap
2014
Revenue
% YOY
Growth
2014
EBITDA
EBITDA
Margin
EV/S
EV/EBITDA
Active
Revenue /
Customers Customer
174,363
36,600
11,000
700
88,988
18,000
2,200
100
20%
57%
120%
90%
72%
6,421
800
n/a
n/a
7%
4%
n/a
n/a
6%
1.9x
1.7x
5.0x
7.0x
3.9x
25.7x
38.4x
n/a
n/a
270
46
n/a
n/a
$330
$391
n/a
n/a
$360
1,220
204
175%
-163
-80%
6.0x
n/m
2.5
$81
7%
10%
4%
Rocket Internet
27%
Others
Tesco Overseas
Kinnevik
25%
Access Industries
27%
Summit Partners
Timeline
2012 Lazada founded in March.
2012 Raised $40 million from Kinnevik at $365 million valuation in November.
2013 During 2013 raised a total of $370 million from various investors.
2014 Valued at EUR 504 million in February.
2014 Raised EUR 200 million at a EUR 1.0 billion valuation in November.
Source: Kinnevik, Rocket Internet data
60
Linio
Overview
Linio, founded in 2012, is a B2C/marketplace online retailer in Spanish-speaking Latin America. As of
2014 4Q, it operates in Colombia, Mexico, Peru, Venezuela, Chile, Panama, Argentina and Ecuador, with
225 million addressable customers.
In 2014, we expect Linio to grow revenues 80% year-over-year to EUR 86 million and produce EBITDA
losses of EUR -73 million at EBITDA margin of -85%. Based on the last financing round in July 2014, Linio
is currently valued at $326 million, a sales multiple of 2.9x.
Competitive position
Among B2C e-commerce companies in Latin America ex-Brazil, Linio is the market leader for website
visits, getting 54% of traffic market share and 2 times the visits of #2 Netshoes. When offline retailers
websites are included in the traffic comparisons, Linio remains the leader with 23% traffic market share.
61
Linios popularity is approaching the traffic levels of MercadoLibre, the online C2C leader in Latin
America.
Similarweb country rank
Linio
Colombia
20
Mexico
24
Peru
27
Venezuela
276
Chile
78
Panama
27
Brazil
MercadoLibre
10
8
13
6
13
289
Netshoes
Falabella
48
467
51
32
By avoiding Brazil and focusing on less competitive and penetrated markets, we believe Linio has a good
chance at becoming the #1 B2C and marketplace e-commerce retailer in its countries of operation.
Valuation
Growing an online B2C e-commerce company into a market leader requires 5-8 years of EBITDA losses
and hundreds of millions of invested capital. Even for the most successful precedents, positive operating
margins usually are not achieved until a company reaches $1 billion in revenues. For example, Amazon
required 7 years and $2 billion dollars of financing before achieving positive operating margin of 1.6% on
$3.9 billion in sales in 2002.
62
Linio, generating only EUR 86 million revenue in 2014 while spending higher amounts on marketing,
logistics, and pricing, will likely generate losses until 2019. Based on our financial projection, we
estimate the company will require an additional EUR 362 million in financing to get to that point,
significantly diluting existing investors.
Because EBITDA is negative, we use a sales ratio of 2.0x to value Linio. In 2017, we estimate fair value of
USD $809 million, with Kinneviks post-dilution ownership of 6.7% worth $55 million.
Linio financial projection
(EUR mm, except per customer)
2012
38
171
7
-15
-223%
4
2013
320
742%
150
-12%
48
637%
2014 E
704
120%
122
-18%
86
80%
2015 E
1,408
100%
104
-15%
147
70%
2016 E
2,534
80%
93
-11%
235
60%
2017 E
4,055
60%
87
-6%
352
50%
2018 E
6,083
50%
81
-7%
492
40%
2019 E
8,516
40%
81
0%
689
40%
-34
-71%
21
-73
-85%
55
$326
-110
-75%
-55
-117
-50%
-173
-106
-30%
-278
$809
-49
-10%
-327
-34
-5%
-362
2.0x
1.15
$809
9.4%
6.7%
$55
Customer metrics for Linio support a high double digit growth rate forecast, as 2014 T9M orders were
up 140% and active customers were up 164%.
Linio customer data, 2014 T9M vs. 2013 T9M
(000s, except GMV)
2013 T9M 2014 T9M
Total Customers
220
730
% growth
232%
Total Orders
316
759
% growth
140%
Active Customers
220
580
% growth
164%
GMV ( mm)
31
57
% growth
85%
Source: Rocket Internet data
63
The range of sales multiples for e-commerce peers is wide, ranging from 0.6x EV/Sales for the larger
Brazil-based online retailers B2W Digital and Cnova, to over 5.0x EV/Sales for Linio sister companies
Lazada and Jumia.
Latin America online retailer comparison
($ mm)
B2W Digital
Cnova
Lazada
Jumia
MercadoLibre
Average (ex-MELI)
Market
Cap
1,956
2,827
1,150
512
5,450
2014
Revenue
3,335
3,995
204
76
579
% YOY
Growth
31%
20%
175%
100%
22%
81%
Linio
326
113
80%
Source: Company data, Deerwood Estimates
*Estimated figures if official financials unavailable
*Active customers in millions, Revenue/Customer in $
2014
EBITDA
237
75
-163
-81
183
EBITDA
Margin
7%
2%
-80%
-106%
32%
-44%
EV/S
EV/EBITDA
0.6x
0.6x
5.6x
6.7x
9.4x
3.4x
8.2x
29.6x
n/m
n/m
29.8x
18.9x
-96
-85%
2.9x
n/m
Active
Revenue /
Customers Customer
n/a
n/a
13.6
$294
2.5
$81
0.39
$194
114.0
$5
0.70
$160
With more established comps Amazon and B2W Digital trading at 0.9-1.9x sales, and younger, faster
growing peers issuing equity at 5.9-6.7x sales, we think a 2.0x sales multiple for our 2017 Linio valuation
estimate is reasonable, given the forecast of high double digit revenue growth.
Management and Ownership Structure
Andreas Mjelde, CEO. Previous experience with McKinsey & Company and 3i.
Luca Ranaldi, Chief Commercial Officer. Previous experience with McKinsey & Company and Ferrari.
Linio ownership structure
Rocket Internet
35%
35%
Access Industries
Kinnevik
Summit Partners
Others
6%
9%
15%
Timeline
2012 Linio founded as a B2C general merchandise online retailer.
64
2013
2013
Raised $95 million from Tengelmann, Santo Domingo Group, Latin Idea, JPMorgan, and
Kinnevik.
Began offering marketplace and C2C services in June.
2014
Raised $79 million from Northgate Capital, Access Industries. Valued at $298 million in July.
2014
65
Konga, also founded in 2012, is backed by Kinnevik and Naspers. Although no official financial data has
been released yet, the company has stated that Kongas 2014 Black Friday (Yakata) sales were USD $3.5
million in a single day, which CEO Sim Shagaya implied could be equal to an entire months worth of
revenue. Based on this data point, we estimate Kongas 2014 sales to be USD $30 million, with an
EBITDA loss of -$32 million at -106% EBITDA margin (assuming the same EBITDA margin as Jumia). Based
on the latest financing transaction as of 2014 4Q, Konga is valued at USD $92M, a sales multiple of 3.1x.
Currently, Konga only operates in Nigeria, but may expand to other countries in Africa just as Jumia has
done.
66
Competitive Position
As Jumia and Konga fight fiercely for market share, we believe that only one company will eventually
emerge victorious as the #1 e-commerce retailer in Africa. The space has already claimed casualties of
lesser-capitalized, smaller e-commerce retailers, as Kalahari.com.ng, Mocality.com.ng (both backed by
Naspers), Sunglass.com, and Glamour.com have shut down.
Although Jumia is currently in the lead, with twice the revenue of Konga in 2014, it is still too early to
pick a winner, as both companies are financed by deep-pocketed, committed, and experienced
investors. Jumia has cumulatively raised USD $200 million, and Konga has cumulatively raised USD $38
million. Both companies will likely be cash flow negative for 5 years or longer as they build up scale, and
will require hundreds of millions more of capital to get to breakeven EBITDA.
The competitive dynamics leaves Kinnevik in the awkward position of owning significant stakes in both
Jumia (9.6%) and Konga (41%) while contributing capital to both companies, but knowing that half of the
total investment will likely be lost in the end. Unless Jumia and Konga merge, which would be the most
efficient and beneficial solution for all parties, backers of Jumia and Konga are in aggregate allocating
capital sub-optimally as the two companies invest heavily into duplicative marketing, logistics, and
promotions.
Based on social media metrics, online reviews and discussion boards, both Jumia and Kongas brands are
well regarded in Nigeria (aside from normal complaints about shipping and customer service). As of
February 2015, Jumias Facebook page had 1.20 million likes and 60,965 visits, and Kongas Facebook
page had 1.25 million likes and 5,344 visits.
Website traffic data from Similarweb shows that Konga and Jumia are ranked very closely with high
traffic ranks in Nigeria, beating out smaller competitors by a wide margin. Jumia has high ranks in a
number of other African countries as well.
67
Jumia
11
13
18
48
56
58
63
269
367
Konga
7
Dealdey
40
SmartBuy
2,575
Taafoo
410
Kamdora
1,537
WebMallNG
10,184
Jumia Valuation
The most recent financing round for Jumia was in November 2014, when Rocket Internet and other
investors contributed a total of EUR 120 million at an EUR 445 million valuation, or 7.2x sales multiple. In
February 2014, the previous financing round valued Jumia at EUR 212 million, which implies that the
company's value is growing at a rate of more than 100% per year.
Customer data for the first six months of 2014 corroborate a growth rate over 100%, as transactions
were up 149% and active customers up 130%.
Jumia customer data, 2014 1H vs. 2013 1H
(000s, except GMV)
2013 1H
2014 1H
Total Customers
123
361
% growth
193%
Transactions
172
429
% growth
149%
Active Customers
119
274
% growth
130%
GMV ( mm)
13
27
% growth
108%
Source: Rocket Internet
Our financial projection for Jumia assumes that the company will continue to grow at high double digits
until it reaches revenue of EUR 809 million in 2019, at which point it will be at -5% EBITDA margin. We
estimate Jumia will require at least EUR 192 million in additional financing to get to that point.
68
2012
50
2013
195
290%
149
29
-34
-116%
11
2014 E
390
100%
149
0%
58
100%
2015 E
741
90%
149
0%
110
90%
2016 E
1,334
80%
149
0%
198
80%
2017 E
2,267
70%
149
0%
337
70%
2018 E
3,628
60%
149
0%
540
60%
2019 E
5,442
50%
149
0%
809
50%
-62
-106%
101
$543
-72
-65%
29
-60
-30%
-31
-67
-20%
-98
$776
-54
-10%
-152
-40
-5%
-192
2.0x
1.15
$776
9.7%
8.5%
$66
Our choice of 2.0x revenue multiple, which is equivalent to Amazons current valuation, is likely
conservative, given that Flipkart and Souq have completed recent financing rounds at an estimated 5.07.0x revenues.
Konga Valuation
Our Konga valuation model is subject to higher uncertainty compared to Jumia, as no official financial or
operating metrics have been released. The starting point for our financial projection is an estimated USD
$30 million revenue in 2014, and is derived from the single data point of $3.5 million USD sales on Black
Friday (Yakata), which was hinted to be equivalent to an entire months worth of sales. Assuming
monthly revenue of $1.5 million USD in 2014 January and increasing sales month-over-month by +6%
(equivalent to growth of 100% per year), we estimate Kongas 2014 revenue to be USD $30 million.
69
2014 E
30
100%
-32
-106%
25
$92
($ mm)
Revenue
% growth
EBITDA
EBITDA Margin
Cash (Deficit)
Valuation ($ mm)
2015 E
57
90%
-54
-95%
-18
2016 E
103
80%
-72
-70%
-74
2017 E
174
70%
-113
-65%
-135
$349
2018 E
279
60%
-56
-20%
-191
2019 E
419
50%
-42
-10%
-233
2.0x
$349
41.0%
29.5%
$103
For Kongas EBITDA margin forecast, we used the same growth rate assumptions for Konga as Jumia,
and forecast EBITDA losses until it reaches $1 billion in sales, possibly in 2022. We estimate Konga needs
at least USD $233 million in additional financing to reach revenue of $419 million in 2019.
Using the same sales multiple of 2.0x as we did for Jumias valuation, we forecast Konga value of $349
million in 2017.
Peer Comparisons
There are no publicly traded general B2C e-commerce companies in Africa, so for comparison we use a
mix of established online retailers Amazon and JD.com (China), and private emerging market B2C online
retailers Flipkart (India) and Souq (Middle East).
Africa and Asia B2C online retailer comparison
Market
2014
% YOY
2014
($ mm)
Cap
Revenue Growth EBITDA
Amazon 174,363 88,988
20%
6,421
JD.com
36,600
18,000
57%
800
Flipkart
11,000
2,200
120%
n/a
Souq
700
100
90%
n/a
Average
72%
Jumia
Konga
543
92
76
30
100%
100%
-81
-32
EBITDA
Margin
7%
4%
n/a
n/a
6%
EV/S
EV/EBITDA
1.9x
1.7x
5.0x
7.0x
3.9x
25.7x
38.4x
n/a
n/a
32.1x
-106%
-106%
7.2x
3.1x
n/m
n/m
Active
Revenue /
Customers Customer
270
$330
46
$391
n/a
n/a
n/a
n/a
$360
0.39
n/a
$194
n/a
70
Souq.com is the closest peer to Jumia and Konga, given its rumored revenue of $100 million and high
double digit revenue growth. Given its recent financing round at approximately 7.0x sales multiple, a
2.0x multiple for Jumia and Konga in 2017 seems reasonable.
Jumia Management and Ownership Structure
Jumia was originally co-founded in 2012 by Tunde Kehinde and Raphael Afeador, under the name
Kasuwa, with seed money from Rocket Internet. After merging with another Rocket start-up, Sabunta,
and changing the name to Jumia, Tunde and Raphael eventually were replaced by new Rocket-chosen
management in January 2014. Current management of Jumia is led by the Co-CEOs of African Internet
Holding, Sacha Poigonnec and Jeremy Hodara, both formerly with McKinsey, and the CEO of Jumia is
Gregoire de Tilly, formerly with Bain & Company, Spartoo.com and ESCP Europe.
Jumia ownership structure
2%
1%
Rocket Internet
7%
27%
10%
Chelsea Wharf
Holding
Millicom
17%
20%
17%
MTN Group
Kinnevik
71
26%
41%
Kinnevik
Naspers
Others
33%
Jumia Timeline
2012 Jumia founded in June under the name Kasuwa, merged with Sabunta, and became Jumia.
2013 Raised $51 million USD from Summit Partners and Africa Internet Holdings, valued at 212 million
EUR.
2014 In January the original founders left the company and Rocket appointed new management.
2014 Raised 120 million EUR at a 445 million EUR valuation in November.
Source: Rocket Internet, Kinnevik data
Konga Timeline
2012 Konga founded by Sim Shagaya with $3.5 million USD capital from KINV in July.
2013 Naspers invested in a $10 million USD round for a 50% stake in March.
2014 Raised $25 million USD in a Series B round in January.
2014 As of 2014 4Q, Konga is valued at USD $92 million based on Kinnevik's fair value mark.
Source: Kinnevik data
72
Avito
Overview
Avito, launched in 2007, operates the #1 Russian online classifieds site with 59 million unique monthly
visitors and 5.6 billion monthly page views. The site spans five verticals - Auto, Real Estate, Jobs, Services
and General. Since inception, millions of Russian individuals and businesses have used the site to buy
and sell goods and services. Avito also operates classifieds sites in Ukraine, Egypt and Morocco.
In 2014 we expect Avito to grow revenues 84% year-over-year to RUB 4.4 billion (USD $107 million), and
produce positive cash flow at a 60% EBITDA margin. Avito is currently valued at USD $957 million, or a
LTM EBITDA multiple of 24.0x, based on Kinnevik's 2014 4Q fair value estimate of SEK 2.3 billion for its
31% interest.
Russian E-commerce and Online Advertising Markets
The e-commerce and online advertising markets in Russia have significant growth potential in the
coming years. Russia is Europes largest internet population with 82 million, but still has relatively low
internet penetration of 57% (vs. 84% in the US). E-commerce penetration in Russia is even lower at 3.2%,
compared to 8% in developed countries.
Russian e-commerce retailers are faced with several unique challenges. As the worlds largest country by
total area, the Russian logistics infrastructure is underdeveloped with inefficient providers. Online
retailers not only have to solve the issue by building their own delivery systems, but figure out ways to
cope with low credit card penetration, strong preference for cash on delivery payment, and fragmented
markets. However, Avitos future growth potential is essentially immune to these challenges because it
serves as a marketplace for users to exchange information online and transact offline.
Russias online advertising market is forecasted to grow at a CAGR of 20% from 2013-2017 to USD $5
billion per year from $2.4 billion in 2013. Plenty of monetization opportunities exist for Avito, the largest
online classifieds operator, to take advantage of the higher ad spend.
73
The primary drivers of Avito's revenue growth, number of unique monthly visitors and revenue per
unique monthly visitor, will benefit from these tailwinds.
Competitive Position
Avito is the clear leader for Russian online classifieds in all key verticals, and as a result possesses a wide
economic moat. The companys monthly average users (MAU) and page views are 2.7x and 5.2x higher
than the next largest competitors.
74
After the 2013 merger between Avito and Slando.ru/OLX, we do not see any challenger to Avitos
dominance in general classifieds, although specialty vertical classifieds could take share in specific
categories. Avito has prepared for this by starting a separately branded real estate site, Domofond.ru.
Valuation
Online classifieds is a winner-takes-all industry due to strong network effects. Within a given
geographical area, the classifieds site with the most buyers and sellers (liquidity) offers the most value
to users, attracting additional buyers and sellers, which creates even more value for users. This positive
feedback loop ensures that the largest classifieds site becomes a natural monopoly over time.
We believe that Avito still has significant growth potential over the next 3-5 years. Key metrics, including
unique monthly visitors (a 132% compound annual growth rate over the past five years), number of
listed items (74% CAGR), and total revenue (248% CAGR), significantly outpaced global and Russian ecommerce trends, suggesting that Avito is gaining share while fortifying its network effects advantage.
Based on Avitos strong market position in Russia and untapped monetization of its site, we expect
revenues to grow in the high double digits from 2015-2017, well above the expected 20% growth rate
for the Russian online ad market in the next few years.
We estimate fair value for Avito in 2017 to be USD $3.3 billion, based on an EV/EBITDA multiple of 18.0x,
and forecast Kinneviks stake in Avito to be worth over $1 billion in 2017.
Avito financial projection
(RUB mm, except per customer)
2010
15.0
2
31
2011
18.3
22%
17
746%
320
932%
EBITDA
EBITDA Margin
Cash ($ mm)
Valuation ($ mm)
2012
30.0
64%
31
77%
926
189%
2013
45.6
52%
53
71%
2,411
160%
2014 E
59.0
29%
75
43%
4,448
84%
2015 E
73.8
25%
90
20%
6,672
50%
2016 E
92.2
25%
109
20%
10,009
50%
2017 E
115.2
25%
130
20%
15,013
50%
-1
0%
685
28%
100
2,672
60%
150
$957
4,137
62%
212
6,606
66%
310
10,509
70%
467
$3,290
18.0x
12.6x
67.00
$2,823
$467
$3,290
KINV % interest
2017 KINV interest value ($ mm)
31%
$1,033
75
In 2014 3Q Avito generated a record 65% EBITDA margin, up from 48% in 2013 3Q. We forecast 70%
EBITDA margin by 2017, driven by Avitos further increase in monetization rates from a low base of USD
$1.37 annual revenue per UMV. In comparison, mature online classifieds sites in developed countries
produce annual revenue per UMV between $8-70.
Avito's goal is to become the Russian version of Craigslist, Rightmove, Monster.com and Autotrader all
at once. Management is focused on verticalisation by adding more tailored products and advertising
solutions targeted towards auto dealers, real estate agents, HR recruiters and other professional users
who are willing to pay a premium for better exposure. Based on the strength of Avitos network effects,
we are optimistic that these initiatives will drive improving monetization, revenue growth and margin
expansion.
76
957
107
EBITDA
Margin
11%
24%
45%
55%
45%
52%
68%
74%
65%
n/a
n/a
n/a
49%
60%
EV/S
EV/EBITDA
UMV
12.0x
7.3x
13.2x
10.0x
n/m
29.6x
29.6x
18.3x
17.5x
8.2x
n/a
6.9x
n/a
10.7x
23.8x
12.6x
n/a
n/a
n/a
22.8x
200
n/a
n/a
29
4
5
20
90
2
52
32
6
Revenue/
UMV
$1.2
n/a
n/a
$16.7
$54.2
$23.0
$8.6
$2.8
$70.3
$1.6
$1.6
n/a
9.0x
14.9x
59
$1.8
With public comparables trading at a range of 13x 30x LTM EBITDA, we think that a 18x EBITDA
multiple in 2017 is warranted for Avito given its high margin, market leadership position and growth
prospects for the Russian online ad market.
Management and Ownership Structure
Co-founders Filip Engelbert and Jonas Nordlander hold a collective 13% stake in Avito. Engelbert, the
Group CEO, has extensive experience in investment banking and online entrepreneurship in emerging
markets. Jonas Nordlander, CEO of Avito Russia, co-founded Tradera and sold the company to eBay
Sweden in 2006 for $65 million. Thereafter, he filled the position of COO with eBay Sweden until 2007.
Its worth noting that Jonas Nordlander mentioned in a recent interview with TheStreet that Avito has
prepared the company for a US listing in terms of compliance and reporting requirements, and that it
will be a good way to get liquidity for its diverse group of shareholders with different agendas.
Avito ownership structure
Kinnevik
23%
31%
Naspers
Vostok Nafta
13%
19%
Northzone Ventures,
Baring Vostok, Accel
Partners and Others
77
Timeline
1996 Kontakt East Holding AB founded.
2006 Kontakt East IPO on First North exchange. Kinnevik acquired 18% for SEK 34 million.
2007 Kontakt East launched Avito site. Kinnevik invested an additional SEK 35 million.
2008 Kinnevik and Vostok Nafta took Kontakt East private at a price of SEK 35 per share.
2009 Kinnevik invested SEK 28 million in Avito.
2010 Kinnevik invested SEK 153 million in Avito Holding AB and Vosvik AB.
2011 Kinnevik invested SEK 62 million in Avito.
2012 Avito raised USD 75 million from private equity firm Baring Vostok, Accel Partners, Kinnevik
(invested SEK 50 million) and Northzone.
2013 Avito merged with Slando.ru and OLX.ru. In the transaction, Naspers contributed its classifieds
sites and USD $50 million to receive a 18.6% stake in Avito.
2014 Kinnevik increased its stake in Avito from 30.8% to 31.7% (fully diluted) by exercising its preemption right to acquire its share of warrants being offered for sale by the founders of Avito.
Including the subscription price for the warrants, Kinneviks investment amounted to
approximately SEK 110 million. Avito was valued at USD $957 million in 4Q.
Source: Kinnevik, Vostok Nafta data
78
Quikr
Overview
Quikr is a leading general online classifieds site in India with 32 million unique monthly visitors and more
than 450 million monthly page views. Individuals and businesses access Quikr to sell, buy, rent or find
products and services in a variety of categories such as electronics, cars, bikes, real estate, services, jobs,
education and entertainment.
In 2014 we estimate Quikr will generate over INR 3 billion (USD $50 million) in revenue, up 54% yearover-year, and be profitable on an EBITDA basis. Quikr is currently valued at USD $343 million based on
Kinnevik's 2014 4Q fair value mark of SEK 425 million for its 16% interest.
Competitive Position
There is an intense battle between Quikr and OLX India (owned by Naspers) to become the market
leader. Quikr and OLX have co-existed in India since 2008, and have experienced tremendous growth.
Both companies have raised sizable equity investments from multiple funding rounds and spent
aggressively on television campaigns that made them well known in India. As illustrated in the chart
below, Quikr enjoys a slightly stronger presence with double the amount of unique visitors of OLX.
However, other metrics based on website traffic suggest that neither company has a dominant position.
Year Launched
Monthly Unique Visitors (mm)
Monthly Page Views (mm)
Number of Listings (mm)
Facebook Likes (mm(
# of Indian Cities Available
Alexa Traffic Rank in India
SimilarWeb Traffic Rank in India
Quikr
2008
32
450
10
2
940
17
45
OLX India
2006
16
1,500
10
6
500
34
42
Sellers would most likely post to both websites simultaneously to get maximum exposure. Buyers will
also browse both websites to find the best deal. It appears no natural monopoly yet exists in the Indian
online classifieds market to take advantage of strong network effects. We expect Quikr and OLX India to
both continue growing rapidly until they decide to address the serious threat posed by each other. A
merger of Quikr and OLX would probably be the best outcome for KINV and Naspers shareholders, as
demonstrated by the success of Avito after it merged with Slando/OLX in 2013.
Valuation
We believe Quikr is well-suited to take advantage of the tremendous growth opportunity In India for ecommerce and online advertising. According to a recent Edelweiss research report, the size of Indias
online classified industry is expected to grow to INR 31 billion by 2016, a CAGR of 41% from INR 11
billion today. Based on Quikrs leading market position and significant untapped monetization, we
expect revenues to grow in the double digits.
79
2014 E
32.0
N/A
96
3,088
N/A
154
5%
$343
2015 E
44.8
40%
106
10%
4,755
54%
2016 E
62.7
40%
117
10%
7,322
54%
2017 E
87.8
40%
128
10%
11,276
54%
951
20%
2,197
30%
4,511
40%
$1,461
8.0x
20.0x
61.75
$1,461
16%
$234
Quikr is focused on monetization as it grows users, page views and traffic. It receives revenue from
tapping small businesses to advertise on the site, and about 70-80% of its revenues come from jobs, real
estate and cars. This strategy does not seem to have hindered its market position. The CEO, Pranay
Chulet, mentioned in a 2014 interview that Quikr is now not making losses. We estimate an EBITDA
margin of 5% for 2014 and forecast EBITDA margin expanding towards 40% by 2017.
Online classifieds comparison
($ mm)
RightMove
Autohome
58.com
Avito
Schibsted Established Classifieds
Finn.no
Blocket/Bytbil.se
Leboncoin.fr
Trade Me Group
Bitauto
Craigslist
Saltside Technologies
Average
Quikr
Enterprise
LTM
Value
Revenue
EBITDA
Margin
EV/S
EV/EBITDA
UMV
Revenue/
UMV
74%
45%
11%
49%
55%
45%
52%
68%
65%
24%
n/a
n/a
49%
17.5x
13.2x
12.0x
9.0x
10.0x
23.8x
29.6x
n/m
24.0x
18.3x
1,147
2,270
n/a
113
256
283
230
107
476
190
115
171
141
313
81
n/a
8.2x
7.3x
n/a
n/a
11.0x
12.6x
29.6x
n/a
n/a
23.0x
90
n/a
200
59
29
4
5
20
2
n/a
52
6
$2.8
n/a
$1.2
$1.8
$16.7
$54.2
$23.0
$8.6
$70.3
n/a
$1.6
n/a
343
50
n/a
6.9x
n/a
32
$1.6
4,476
3,730
2,750
957
4,775
80
Quikr only recently achieved profitability in 2014. We valued Quikr based on a sales multiple given the
uncertainty associated with the expected margin expansion because of intense competition. With public
comparables trading at a range of 7x 15x LTM sales, we think that a 8x sales multiple is reasonable for
Quikr, given its market leadership position and growth prospects. We forecast Kinneviks stake in Quikr
to be worth $234 million in 2017.
Management and Ownership Structure
Pranay Chulet is the founder of Quikr and has been its Chief Executive Officer since July 2009. Mr. Chulet
grew up in India and worked in Brand Management at P&G India. He then moved to New York working
as a management consultant in the Media Practice at Booz Allen, and later founded Zobyx, a new media
start up. He is a graduate of IIT Delhi and IIM Calcutta.
Kinnevik
Matrix Partners
Nokia Growth Partners
Norwest Venture Partners
Tiger Global Management
Omidyar Network
Warburg Pincus
eBay Inc.
Ownership
16.0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Timeline
2005 Kijiji, a subsidiary of eBay, was launched in March.
2008 Kijiji re-branded into Quikr.com and received the first round of outside funding from Matrix Partners
and eBay in February 2008.
2014 In March, Kinnevik invested SEK 254 million (USD $39 million) in the context of a total raise of $90
million. The raise included participation from Quikrs principal current investors.
2014 During Q3, Kinnevik invested an additional USD $15 million in Quikr in the context of a total raise of
$60 million. Tiger Global also participated in the offering.
Source: Kinnevik data, news articles
81
Saltside
Overview
Saltside Technologies, founded in 2011 with Kinnevik as primary sponsor, operates the leading online
general classifieds sites in Bangladesh (Bikroy.com), Ghana (Tonaton.com), and Sri Lanka (Iklan.lk). The
total covered population of the three sites is 200 million.
In January 2015 the company raised USD $40 million from Hillhouse Capital, Brummer & Partners, and
Kinnevik, at an implied post-money valuation of $112 million. Prior to the financing round, the company
was valued at $23 million, based on Kinneviks fair value mark in 2014 4Q.
Kinnevik has not released official financials or operating data about Saltside for competitive reasons, so
our estimates are subject to higher uncertainty compared to Avito.ru and Quikr.
Competitive Position
In its three countries of operation, Saltside competes with global classifieds companies OLX,
Schibsted/Telenor (Ekhanei.com), and local site topjobs.lk.
82
Bikroy.com
2012
1.5
2,126
23
17
Bangladesh
Ekhanei.com OLX Bangladesh
2006
2014
0.7
0.5
2,406
666
70
109
42
75
Ghana
Tonaton.com
OLX.com.gh
2013
N/A
0.8
0.3
170,351
3
20
72
15
39
Sri Lanka
Ikman.lk
topjobs.lk
Year Launched
2012
N/A
Monthly Page Views (mm)
2.35
0.9
Facebook Likes (000s)
425
34
Alexa Traffic Rank
8
25
SimilarWeb Traffic Rank
6
46
Source: Similarweb, Alexa, Facebook, 2015 February
As of February 2015, Saltsides sites have significantly higher monthly page views and traffic ranks than
the #2 classifieds sites in each country. However, competition has become much tougher in Bangladesh
after the merger of Ekhanei and OLX Bangladesh in early 2015. Even though Topjobs.lk is a jobs site, we
included it for comparison because no other general classifieds site exists in Sri Lanka besides Ikman.lk.
Saltside and its competitors have already started to monetize traffic. In Bangladesh, Ghana, and Sri
Lanka, Saltside sells both display advertising and sponsored listings. Ekhanei and OLX Ghana also sell
display advertising, but do not sell sponsored listings yet. Topjobs.lk sells both advertising and
sponsored listings.
In general the most popular classifieds site in a country will over time increase its lead on smaller sites
due to network effects. If Saltside can maintain its size and traffic advantages going forward, we would
expect its value to continue to grow rapidly with higher traffic, monetization, and revenue per visitor.
Valuation
Our 2017 valuation estimate for Saltside is based on the latest financing rounds implied valuation of
$112 million, and increase the valuation by 40% per year until 2017. Without officially released financial
data or operating metrics, this projection is subject to a high degree of uncertainty.
Saltside financial projection
($ mm)
2014 2015 Jan
Valuation
23
112
% growth
395%
2015 E
157
40%
2016 E
219
40%
2017 E
307
40%
However, we believe the 40% CAGR in Saltsides valuation from 2015-2017 is very achievable, based on
two data points. The first data point is the 427% growth in value from 2014-2015, implying the operating
metrics of Saltside are growing much faster than 40%. The second data point is the 45% CAGR in unique
monthly visitors of Avito.ru from 15 million to 45.6 million during 2011-2013.
83
As Saltside is starting from a smaller base than Avito, with an estimated 6 million visitors a month in
2015, it should grow even faster than Avito from its current point. Furthermore, Kinnevik will also be
able to apply the lessons learned from Avito and Quikr to Saltside, and keep the lines of communication
open with Naspers for potential merger synergies.
Management and Ownership
Nils Hammar, CEO. Previous experience with Kindo.com (social network), and was one of the first
employees at Skype.
James Peck, Chief Strategy Officer. Previously at Naspers in Hong Kong with classifieds, payment and
ecommerce investments, Amazon, and Robert W. Baird.
Hakan Malm, Chief Operating Officer. Previously founder of Duego, Brazils largest mobile data site,
Withing Bank, and Kinnevik Online Ventures.
Saltside ownership structure
8%
Kinnevik
Hillhouse &
Brummer
31%
61%
Others
Timeline
2011 Saltside founded in Gothenburg, Sweden.
2013 Raised USD $10 million from Kinnevik.
2014 Raised additional $10 million from Kinnevik. Valuation at $21 million.
2015 In January raised $40 million from Hillhouse Capital, Brummer & Partners, and Kinnevik, at an
estimated valuation at $112 million.
Source: Kinnevik data, news articles
84
Wimdu
Overview
Wimdu, founded in 2011 in Berlin, operates a global online marketplace for short term rentals and
private accommodations connecting travelers with hosts, and is very similar to Airbnb.
In 2014, we estimate Wimdu had 1.6 million booked room-nights and generated EUR 17 million in
revenue. As of 2014 4Q, Wimdu is valued by Kinnevik at USD $170 million, a revenue multiple of 7.6x.
Rocket Internets last release of operating statistics is as of 2014 2Q, but revenue data for Wimdu has
not been released since 2013 3Q.
Competitive Position
Wimdu competes against much larger established sites Airbnb and HomeAway.
Short-term rental online marketplaces comparison
($ in mm)
Airbnb
HomeAway
Wimdu
Year
Launched
2007
2005
2010
2014
Revenue
500
447
22
EBITDA
Margin
N/A
15%
N/A
EV/Revenue
EV/EBITDA
20.0x
5.1x
7.6x
N/A
35.2x
N/A
Source: Bloomberg, Morningstar, Yahoo, Company data, news articles, Deerwood estimates
85
Even though Wimdus number of listings is comparable at 300,000 vs. 1 million for Airbnb and
HomeAway, its 2014 estimated room-nights booked at 1.6 million is far smaller than Airbnbs estimated
37 million room-nights booked.
Global network effects are not working in Wimdus favor, given its smaller size, but a strategy of
focusing on building a critical mass of European listings may be successful.
Valuation
Our 2017 valuation model for Wimdu assumes moderation of annual growth in room-nights booked and
5% growth per year in revenue per customer night.
Wimdu financial projection
(EUR mm, nights in mm)
2012
0.8
2.4
2.8
7
2013 E
1.2
43%
3.6
52%
3.3
19%
12
80%
2014 E
1.6
36%
4.8
35%
3.5
5%
17
41%
$170
2015 E
2.0
25%
6.1
25%
3.7
5%
22
31%
2016 E
2.4
20%
7.3
20%
3.9
5%
28
26%
2017 E
2.8
15%
8.4
15%
4.0
5%
34
21%
$312
8.0x
1.15
$312
29%
$90
The revenue multiple of 8.0x in 2017 is the same revenue multiple implied by its valuation in 2014, and
is between Airbnbs revenue multiple of 20.0x and HomeAways of 5.1x.
Management and Ownership Structure
Arne Bleckwenn, Co-Founder and Managing Director. Previous experience with Matrix Internet (cofounder), inGame (co-founder), McKinsey & Company, and Jamba!
Hinrich Dreiling, Co-Founder. Previous experience with GratisPay (co-founder), Matrix Internet (cofounder), and Bain & Company.
86
34%
47%
Rocket Internet
Kinnevik
Others
19%
Timeline
2011 Wimdu launched in Berlin, and raises capital from Rocket Internet ($23 million) and Kinnevik
($50 million).
2012 Launched similar Chinese website called Airizu.
2013 Airizu brand shut down, website now redirects to Wimdu.cn.
Source: Kinnevik data, news articles
87
Millicom
Overview
The predecessor to Millicom International Cellular was created in 1981, when Kinnevik began a
partnership with US-based Millicom to buy mobile-telephony licenses in developing countries. In 1990,
Kinnevik contributed its mobile licenses to Millicom and became a majority shareholder of the newly
launched independent entity, and has taken an active role in managing the company ever since.
Today, Millicom offers mobile phone services, fixed broadband, pay-TV, and mobile financial services
across 7 countries in Latin America and 6 countries in Africa. As of 2014 4Q, the company served 56.3
million mobile phone subscribers and 2.6 million high-speed cable households.
Over the past 3 years, the company has shifted from a pure mobile telecom to a Digital Lifestyle
Company offering a complete suite of entertainment, internet, media and financial services via mobile,
cable, and direct-to-home (DTH) channels. Beginning with the purchase of Amnet in 2008, the
acquisition of Cablevision in Paraguay in 2012, the launch of DTH satellite TV in 2014, and the UNE
merger in Colombia, Millicom has built the 7th largest pay-tv and broadband operator in Latin America.
Management has indicated that they will continue to invest in cable and media going forward.
Competitive Position
Millicom has #1 market share in mobile telecom for 4 out of 6 countries in Latin America, is ranked #2/3
in Bolivia, and is a distant #3 player in Colombia. The competitive environment is largely rational in Latin
America with 3-4 telecom operators per country. Not coincidentally, Millicoms EBITDA margins in
LATAM are higher than in Africa, with 49.6% in Central America and 33.5% in South America. Millicom
competes primarily with America Movil and Telefonica in the region.
Millicom market position, Latin America and Africa
88
In Africa, Millicom is #1 in Chad, #2 in Tanzania, DRC, Senegal, and Rwanda, and #3 in Ghana. Millicoms
EBITDA margins of 21.9% in Africa are below the company's total average, and have fallen from 35.9%
EBITDA margin in 2012. Partially offsetting the decline in ARPU, lower margins, and higher CAPEX
requirements are mobile subscriber growth of 24% in 2014 and the success of Tigo Cash Mobile
Financial Services. Management has indicated they plan to stay in Africa for the long haul, despite low
returns on invested capital. Millicom competes primarily with Bharti Airtel, MTN Group, Vodacom, and
country-specific operators.
For the Latin America cable segment, Millicom has a #1 or #2 position in all but one of its countries in
pay-TV and broadband internet. Millicoms competitors in cable and TV include the previously
mentioned telecom operators of America Movil and Telefonica, DTH satellite operator DirecTV/SKY, and
country-specific operators such as CableTica (Costa Rica), and Sur Multimedia (Paraguay).
Valuation
Over the past 4 years, mobile telecom operators, including Millicom, have suffered financially, despite a
growing subscriber base. From 2011-2014 the industry has experienced negative margin pressures from
a competitive environment, lower mobile termination rates, and falling SMS and voice prices and usage.
Making the situation worse is the large investment required to build 3G and 4G networks and
smartphone handset subsidies as customers demand faster, cheaper internet access.
For 2015-2017, we forecast high single digit subscriber growth led by Africa and continued growth in
cable and MFS revenues, partially offset by lower ARPU. Our fair value estimate for Millicom in 2017 is
$11.2 billion or $112 per share, 60% higher than the current price.
89
2011
14.1
10.6
16.1
40.9
$9.29
$4,229
$301
$4,528
$3,271
$1,257
27.8%
$739
$1,996
44.1%
2012
15.2
12.1
17.5
44.8
9.6%
$8.44
-9.1%
2013
15.6
13.3
19.4
48.3
7.8%
$8.02
-5.0%
2014
15.6
14.6
22.8
53.0
9.8%
$7.45
-7.0%
2015 E
16.1
16.0
26.4
58.5
10.2%
$7.00
-6.1%
2016 E
16.5
17.2
30.4
64.2
9.8%
$6.73
-3.8%
2017 E
17.0
18.6
33.5
69.1
7.7%
$6.71
-0.3%
2018 E
17.5
19.9
36.5
73.9
7.0%
$6.64
-1.0%
2019 E
18.1
21.1
39.4
78.6
6.3%
$6.58
-0.9%
$4,537
$378
$354
$5,269
16.4%
$3,939
$1,330
25.2%
$865
$2,192
41.6%
$4,645
$459
$452
$5,556
5.4%
$4,489
$1,067
19.2%
$935
$2,002
36.0%
$4,743
$970
$673
$6,386
15.0%
$5,451
$935
14.6%
$1,158
$2,093
32.8%
$4,909
$1,887
$718
$7,514
17.7%
$6,545
$969
12.9%
$1,362
$2,331
31.0%
$5,183
$2,057
$766
$8,005
6.5%
$6,796
$1,209
15.1%
$1,452
$2,661
33.2%
$5,565
$2,242
$807
$8,614
7.6%
$7,164
$1,450
16.8%
$1,562
$3,011
35.0%
$5,894
$2,444
$831
$9,170
6.4%
$7,610
$1,560
17.0%
$1,663
$3,222
35.1%
$6,208
$2,664
$859
$9,730
6.1%
$8,060
$1,671
17.2%
$1,764
$3,435
35.3%
6.5x
$19,575
($3,900)
($4,439)
$11,236
37.9%
$4,253
Managements latest guidance for 2017 is $9 billion in revenue with 35% EBITDA margin. Our model
projects Millicom falling -5% short of the revenue goal due to continued ARPU pressure, but achieving
the EBITDA margin goal due to UNE cost synergies of $100 million per year, lower handset subsidies, and
stabilization of ARPU in Central and Latin America from higher data usage.
In 2014 4Q, UNEs EBITDA margin was 25.7%, far below Latin American cable peers' average of 36%. A
10% margin improvement in the cable segment alone will drive Millicoms total EBITDA margin higher by
2.0%. In 4Q Millicoms overall gross margin was also affected negatively by -2.1% due to higher handset
sales and regulatory changes, which management has indicated should mitigate in 2015 and 2016.
We believe a 6.5x EV/EBITDA multiple valuation in 2017, slightly above the industry average, is
warranted because of the higher mix of revenues from Cable (25% of EBITDA after the UNE transaction
compared to 8% in 2013). Cable companies are generally priced higher than mobile telecoms at an
average 7.5x EV/EBITDA multiple. In the event of an acquisition of part or all of Millicom, the average
EV/EBITDA for recent telecom acquisitions has been in the range of 7.0-8.5x EBITDA.
90
Market
Cap
70,069
65,185
22,300
32,656
8,207
16,479
2014
Revenue
65,105
66,208
14,886
13,229
4,351
6,818
2014
EBITDA
20,567
21,487
4,987
6,121
1,836
2,362
EBITDA
Margin
32%
32%
33%
46%
42%
35%
EV/S
EV/EBITDA
1.6x
1.8x
2.2x
2.5x
2.0x
2.6x
5.1x
5.5x
6.7x
5.4x
4.8x
7.6x
32%
39%
37%
1.7x
2.3x
2.1x
5.3x
6.1x
5.8x
33%
2.1x
6.5x
LATAM average
Africa average
Total average
Millicom
6,916
6,386
Source: Company data, Deerwood estimates
*Estimated figures if official financials unavailable
*Active subscribers in millions, EV/Sub in $
2,093
2014
Subscribers
368
316
313
219
44
61
EV/Sub
$286
$377
$106
$151
$200
$294
$331
$188
$236
53
$257
Latin American telecom operators are valued at an average of 5.3x EV/EBITDA or $331 per subscriber.
African telecom operators are valued at an average of 6.1x EV/EBITDA or $188 per subscriber. Millicoms
blended value per subscriber is 6.5x EV/EBITDA, or $257 per subscriber, in-line with averages.
Latin America cable companies comparison
Market 2014
2014
Cap Revenue EBITDA
($ mm)
LiLAC Liberty Global (Chile)
n/a
1,212
451
Megacable (Mexico)
3,556
822
353
Cablevision S.A. (Argentina)
3,117
1,642
545
Net Servios de Comunicao (Brazil) 8,602
4,768
1,407
Average
EBITDA
Margin
37%
43%
33%
30%
36%
EV/S EV/EBITDA
n/a
4.2x
2.1x
1.9x
2.7x
n/a
9.8x
6.3x
6.4x
7.5x
2014
EV per
Households Household
1.5
n/a
2.5
$1,405
3.6
$948
6.4
$1,417
$1,257
Cable companies in Latin America are valued at an average 7.5x EV/EBITDA or $1,257 per household
subscription. At the same per subscriber valuation, Millicoms cable segment with 2.6 million household
subscriptions would be worth an enterprise value of $3.3 billion on a 100% basis.
Further upside to Millicom shares not included in our financial projection may come from the sale or
public listing of the Online joint ventures with Rocket (Africa Internet Group, Latin America Internet
Group), growth in Tigo Cash Mobile Financial Services, and cable industry consolidation in Latin America.
Management and Ownership Structure
There has been high turnover in Millicom's Senior Executive ranks over the last 4 years there have
been 3 CEOs, 1 interim CEO, and 2 CFOs. Leadership issues have been settled for the time being,
however, with Mauricio Ramos appointed permanent CEO as of April 1, 2015.
91
Mauricio Ramos, CEO. Prior to Millicom, Mauricio was President of Liberty Globals Latin American
Division (LiLAC) from 2006-2015. Over the past 14 years he has held leadership roles within Liberty
Global as CEO of VTR in Chile, CFO of the Latin American Division, and President of Liberty Puerto Rico.
Mr. Ramos is a Colombian national with degrees in Economics, Law, and postgraduate degree in
Financial Law from Universidad de los Andes in Bogota.
Tim Pennington, Interim CEO and CFO. Joined Millicom in 2014 as CFO, replacing Francois-Xavier Roger.
Previous experience with Cable and Wireless, Hutchison Telecommunications.
Mario Zanotti, Senior Executive Vice President, Latin America. With Millicom since 1992. Previous
experience with Tele2 and YXK Systems.
Arthur Bastings, Executive Vice President, Africa. Joined Millicom in 2013. Previous experience with
Bigpoint, Discovery Communications Europe, Time Warner, and Viacom.
Martin Lewerth, Executive Vice President, Cable and Digital Media. Joined Millicom in 2012. Previous
experience with Modern Times Group, Applied Value, and SKF Group.
Kinnevik has 3 representatives on the board Cristina Stenbeck is Non-Executive Chairman, and former
Kinnevik CEO Mia Brunell Livfors and current Kinnevik CEO Lorenzo Grabau are Non-Executive Directors.
Kinnevik owns 37.9% of shares outstanding worth $2.6 billion.
Millicom ownership structure
Kinnevik
Dodge & Cox
37.9%
41.1%
Nordea Funds
Veritas Asset
Management
5.1%
5.6%
10.3%
Others
Timeline
2008 Acquired Amnet cable business in Central America for USD $532 million ($800 per RGU).
2009
Sri Lanka, Sierra Leone, and Cambodia operations sold for total proceeds of $566 million.
2011
2012
2012
2013
2014
First options exercised for Rocket Internet JV stakes in LIH and AIH, MICC total investment of
EUR 170 million.
CEO Hans-Holger Albrecht resigned. Tim Pennington, CFO, appointed interim CEO.
2014
2015
93
Tele2
Overview
Founded in 1993 by Jan Stenbeck to compete with fixed-line telecom monopolies, Tele2 has evolved
into a mobile telephone and fixed-line operator serving 13.6 million subscribers in 9 countries across
Scandinavia and Eastern Europe. Revenue from Sweden and the Netherlands is 70% of total revenues,
with the remaining 30% split between Kazakhstan, Croatia, Lithuania, Latvia, Estonia, Austria, and
Germany.
Adjusted for the SEK 4.5 billion special dividend to be paid in 2015 from the Norway segment sales
proceeds, Tele2 is currently priced at a trailing EV/EBITDA multiple of 7.0x or $433 per subscriber.
Competitive Position
Tele2 positions itself as a value challenger, offering lower priced products in competition with larger
incumbents, either through its own infrastructure or as a mobile virtual network operator (MVNO).
From 1993-2005 the company expanded rapidly via acquisition and MVNO growth to a peak of 24
countries and 30 million subscribers. From 2005-2014 management has sold multiple non-core, lower
return assets in various countries, and has focused on improving margins and generating cash flows.
Of its remaining 9 countries, Tele2 has the #1 or #2 position in Sweden, Lithuania, and Latvia, and is the
#3 or #4 operator in the remaining 6 countries of Netherlands, Kazakhstan, Croatia, Estonia, Austria and
Germany.
Tele2 subscribers, population share, and market position, by country
Sweden
Netherlands
Kazakhstan
Croatia
Lithuania
Latvia
Estonia
Austria
Germany
Population Share
41%
7%
19%
19%
61%
48%
37%
3%
1%
Position
2/ 4
4/ 4
3/ 4
3/ 3
1/ 4
2/ 3
3 /3
4/ 4
5/ 5
Source: Tele2, company data. Netherlands, Austria and Germany are MVNO operations
94
Tele2s primary global competitors in the Nordic region are TeliaSonera and Telenor. In the Baltics and
Eastern Europe, it competes with TeliaSonera, Telekom Austria, Vimpelcom and country-specific
operators.
Valuation
Our financial projection for Tele2 assumes continued mid-single-digit growth in subscribers, driven by
growth in Kazakhstan and the Baltics and higher ARPUs in Sweden, offset by lower ARPU in the
Netherlands and Other Countries. In 2017 our fair value estimate is USD $3.9 billion, at a 6.5x EV/EBITDA
multiple.
Tele2 financial projection
(SEK mm, mm subscribers)
Sweden subscribers
Netherlands subscribers
Other countries subscribers
Total mobile subs
% growth
Blended ARPU (SEK)
% growth
Revenue
% growth
Total operating expenses
Operating profit
as % of revenue
D&A expense
EBITDA
EBITDA Margin
2011
4.7
1.0
6.3
12.1
181
26,219
22,408
3,811
15%
2,944
6,755
25.8%
2012
4.7
1.0
6.3
12.0
-0.7%
180
-0.1%
2013
4.5
1.1
7.7
13.3
10.8%
161
-10.6%
2014
4.2
1.2
8.2
13.6
2.2%
159
-1.4%
2015 E
4.1
1.3
8.6
14.1
3.5%
155
-2.5%
2016 E
4.1
1.4
9.2
14.7
4.1%
151
-2.4%
2017 E
4.1
1.5
9.7
15.3
4.4%
150
-0.8%
2018 E
4.1
1.6
10.3
16.0
4.4%
148
-1.2%
2019 E
4.1
1.7
10.9
16.7
4.5%
147
-1.2%
25,993
-0.9%
22,871
3,122
12%
2,918
6,040
23.2%
25,757
-0.9%
23,209
2,548
10%
2,892
5,440
21.1%
25,955
0.8%
22,465
3,490
13%
2,436
5,926
22.8%
26,179
0.9%
22,662
3,517
13%
2,457
5,974
22.8%
26,618
1.7%
23,049
3,569
13%
2,498
6,067
22.8%
27,585
3.6%
23,901
3,684
13%
2,589
6,273
22.7%
28,450
3.1%
24,663
3,787
13%
2,670
6,457
22.7%
29,367
3.2%
25,472
3,896
13%
2,756
6,652
22.7%
6.5x
$4,948
($994)
$3,954
KINV % interest
2017 KINV interest value ($ mm)
30.2%
$1,194
Tele2 has a policy of returning excess cash to shareholders via dividends, and has readily monetized lowreturn, non-core assets. The two most recent divestitures were the 2013 sale of Russian operations to
VTB Group for $3.5 billion (5.0x EV/EBITDA, $154 per subscriber), and the pending 2015 sale of Norway
operations to TeliaSonera for $546 million (1.2x EV/Sales, $500 per subscriber). Proceeds from both
sales were paid out to shareholders via extraordinary dividends.
Tele2 shares are currently priced at an above average EV/EBITDA multiple of 7.0x. Our 2017 valuation
multiple of 6.5x is slightly more conservative and closer to comparable company multiples, and is the
same multiple used in our 2017 Millicom valuation.
95
Market
Cap
26,048
65,185
33,038
2014
Revenue
14,360
66,208
16,397
2014
EBITDA
5,005
21,487
5,799
EBITDA
Margin
35%
32%
35%
34%
EV/S
EV/EBITDA
2.4x
1.8x
2.5x
2.2x
6.9x
5.5x
6.9x
6.5x
4,794
3,688
842
23%
1.6x
7.0x
2014
Subscribers
73
316
186
EV/Sub
13.6
$433
$474
$377
$217
$356
Kinnevik
30.2%
Nordea Alfa
Andra AP-Fonden
63.8%
4.0%
Others
2.0%
Timeline
1996 Tele2 shares spun-off from Kinnevik and listed publicly.
2001 Launched operations in Russia via FORA Telecom acquisition
2006 Reduction from 28 to 13 countries of operation to improve return on capital.
2010 Launched operations in Kazakhstan via acquisition.
2013 Sale of Russian operations to VTB Group for $3.5 bn ($154 per sub) in March
2015 Sale of Norway operations to TeliaSonera for $550 million ($500 per sub).
Source: Kinnevik and Tele2 data, news articles
96
Overview
Modern Times Group (MTG) was founded in 1987 by Jan Stenbeck as Scandinavias first commercial TV
channel, TV3. 28 years later, MTG has evolved into a broadcaster and distributor of free-TV, pay-TV,
radio, and digital media across 37 countries in Europe and Africa. The company also owns 37.9% of CTC
Media (NASDAQ: CTCM), Russias largest independent television broadcaster, accounted as an equity
method associate.
44% of MTG's revenue is from sales of advertising, 47% is from subscription revenue via retail DTH
satellite customers and wholesale content customers, and 9% is from B2B/Consumer revenue. The
Viasat Broadcasting segment, which includes all Pay-TV and Free-TV businesses, is 84% of total revenues,
and the Nice/MTGx/Radio segment is 16% of total revenues.
Competitive Position
MTG has stable, leading commercial viewing shares of 15-31% in Scandinavia Free-TV. In the region it
competes with TV4 Group and Canal.
97
For the pay-TV Nordic business, MTG has 1 million premium subscribers, with the 2014 loss of satellite
subscribers offset by addition of third party network subscribers. Canal Digital is MTGs primary
competitor for DTH satellite-TV.
Pay-TV Nordic subscriber and ARPU, 2013-2014
In Free-TV emerging markets, which are primarily driven by the Baltic, Czech, and Bulgarian markets,
MTG has leading market share of 34-50% in most countries, competing with state-owned channels, TV
Nova (Czech), and Fox International.
98
In the pay-TV emerging markets segment, of which 94% of revenues are from the Baltics, Czech and
Bulgaria, MTG has grown its wholesale mini-pay channel subscriptions to 131M (including acquisition of
Trace), but has lost 16% of satellite subscribers in 2014.
Pay-TV emerging markets mini-pay and satellite subscribers, 2013-2014
CTC Medias channels have a minority share of viewing, with the #6 position behind the 3 state-owned
channels, TNT, and Channel 5. For Channel 31 in Kazakhstan it has 15.4% viewing share.
Valuation
We consider MTGs core Scandinavian free-TV and pay-TV segments (63% of total revenue and 73% of
total EBIT) mature, cash generative businesses, with future organic growth in-line with GDP growth of 13%. The Emerging Markets free-TV and pay-TV segments margins and revenue growth have been
uneven in recent years due to impairments and write-offs. The Nice/MTGx/Radio business has not
produced positive operating income on a stand-alone basis. Finally, there is uncertainty associated with
the recent Russian law passed limiting foreign ownership in media companies to 20%, which may force a
partial sale of MTGs 37.9% stake in CTC Media and the Russian pay-TV businesses.
99
Therefore, our 2015-2017 financial projection for MTG assumes a conservative organic growth rate of
3.5% per year, with EBITDA margin remaining at 2014 levels of 12.7%.
MTG financial projection
(SEK mm)
Revenue
% growth
Gross profit
Gross Margin
Operating profit (EBIT)
EBIT Margin
EBITDA
EBITDA Margin
2009
12,427
4,873
39%
1,855
14.9%
2,085
16.8%
2010
13,101
5.4%
5,199
40%
2,424
18.5%
2,642
20.2%
2011
13,473
2.8%
4,693
35%
2,567
19.1%
2,750
20.4%
2012
13,336
-1.0%
5,438
41%
2,124
15.9%
2,286
17.1%
2013
14,129
5.9%
5,610
40%
1,885
13.3%
2,074
14.7%
2014
15,746
11.4%
5,967
38%
1,830
11.6%
1,998
12.7%
2015 E
16,297
3.5%
6,176
38%
1,894
11.6%
2,068
12.7%
2016 E
16,868
3.5%
6,392
38%
1,960
11.6%
2,140
12.7%
2017 E
17,458
3.5%
6,616
38%
2,029
11.6%
2,215
12.7%
10.0x
8.24
$2,688
($43)
$2,645
KINV % interest
2017 KINV interest value ($ mm)
20%
$529
At an EV/EBITDA multiple of 10.0x, slightly below peers average of 12.7x, our estimate of fair value for
MTG in 2017 is USD $2.6 billion.
European television companies comparison
($ in mm)
ITV plc
Mediaset S.p.A
British Sky Broadcasting
RTL Group SA
ProSiebenSat.1 Media
Average
MTG
Enterprise
Value
14,514
6,132
31,858
16,399
11,661
LTM
Revenue
3,786
4,459
12,661
7,610
3,596
LTM EBITDA
2,251
2,237
284
978
447
2,544
1,346
1,121
EBITDA
Margin
26%
10%
20%
18%
31%
21%
13%
EV/Revenue EV/EBITDA
3.8x
1.4x
2.5x
2.2x
3.2x
2.6x
14.8x
13.7x
12.5x
12.2x
10.4x
12.7x
1.0x
7.9x
100
Kinnevik
20%
Nordea Funds
6%
4%
70%
Swedbank Robur
Funds
Others
Timeline
1987 TV3 began broadcasting as Scandinavias first commercial TV channel.
1991
1995
1997
2000
2001
2002
2008
Sold DTV in Russia to CTC Media and acquired Nova in Bulgaria with proceeds.
2010
2014
2015
101
Bayport
Overview
Bayport Management Ltd., founded in 2002, is an emerging markets financial services provider making
micro-loans to individuals in Africa and Latin America. The company essentially operates as a sub-prime
emerging markets bank, with a capital structure funded by a combination of corporate bonds, term
loans, and securitizations. Bayport has 400 branches and multiple outbound call-centers to facilitate
originations, and employs over 4,000 mobile, commission-earning agents.
As of February 2015, Bayport services over 532,000 customers holding loans totaling USD $865M, at an
average loan size of $1,620 and an average gross interest rate of 26% (before provision for credit losses).
Loans are used by borrowers for financing non-recurring expenses such as education, farming
investments, housing improvement, or small business purposes.
In January 2014, the company acquired Bayport Financial Services South Africa for ZAR 1.6 billion,
financed by issuing equity to new and existing investors, including Kinnevik. The acquisition doubled the
size of the loan book. As of September 2014, the company reported total assets of USD $1.13 billion, net
advances/loans of $940 million, and shareholders equity of $237 million.
The company is technically listed on the Stock Exchange of Mauritius, with public financial reporting
requirements, but its shares are unavailable for purchase by the public.
102
For the fiscal year ending March 2015, we estimate Bayport will have a net loan book of $1.03 billion,
shareholders equity of $247 million, and adjusted net income of $49 million. Based on Kinneviks fair
value mark of USD $430 million on a 100% basis, the company is trading at a price to book ratio of 1.7x
and a price to earnings ratio of 8.7x.
Valuation
Bayport has grown rapidly since 2005, increasing its loan book to over $1.0 billion from $12 million.
Shareholders equity to loans has held steady at 23-24% from 2011-2013. The company has historically
generated high ROEs with 23% in 2013, although ROE has been decreasing since 2011's high of 32%.
Bayport financial projection
($ mm, except ROE) (year ending 3/31)
2011
231
2012
340
47%
231
340
47%
75
22%
20
27%
54
23%
17
32%
2013
418
23%
439
857
152%
209
24%
49
23%
2014 E
2015 E
2016 E
2017 E
1,028
20%
247
24%
49
20%
$430
1,234
20%
296
24%
59
20%
1,481
20%
355
24%
71
20%
1,777
20%
426
24%
85
20%
$725
1.7x
8.5x
$725
30.7%
$223
We forecast 20% growth in the loan book from 2014-2017, with a stable equity to loan ratio of 24%, and
ROE of 20%. In 2017 we value the company at a price to book multiple of 1.7x, which implies a P/E ratio
of 8.5x P/E, both reasonable multiples for a bank.
Bayports closest publicly traded peer is Gentera, a publicly-traded micro-lender in Mexico with a total
loan book of USD $1.6 billion. Gentera sports a much higher public market valuation of $3.2 billion, with
a P/B multiple of 4.2x and P/E of 19.3x, likely due to its long track record of profitability since 1990,
higher gross yields on loans of 60%, lower provision for credit losses as % of net loans, and higher ROA
of 11.8% and higher ROE of 32%.
103
10.7%
4.6%
16.0%
6.9%
6.9%
3.3%
Efficiency ratio
83.3%
64.1%
It is interesting to note that despite over double the interest rates of Bayport, Gentera has lower
provisions for credit losses as a percentage of net loans, implying that Bayport is significantly
underpricing its loans. This corroborates comments made by Justin Chola in 2007 that Bayport
intentionally does not charge the maximum rate of interest possible in order to benefit the communities
they serve in fact the interest rates of 70-90% at that time were not significantly higher than
commercial bank rates, and much lower than loan sharks.
We believe Bayport is a likely candidate to be publicly listed in the next few years to tap additional
sources of financing for expansion to new geographies.
Management and Ownership Structure
Grant Kurland, Co-CEO and co-founder, owns 11.8% of Bayport. Previous experience with Credit Direct,
and Nandos.
Stuart Stone, Co-CEO and co-founder, owns 10.7% of Bayport.
Justin Chola, Non-Executive Director.
Bayport ownership structure
Kinnevik
23.6%
30.7%
Helios Investment
Partners
Grant Kurland
10.7%
Stuart Stone
11.8%
23.2%
Others
104
Timeline
2002 Bayport founded by Stuart Stone and Grant Kurland as a British Virgin Islands company.
2005
2011
2013
Raised USD $137 million from Helios, Kinnevik, Groundsel and Grant Kurland.
2014
Bayport acquires Bayport South Africa from primary owners Stuart Stone and Grant Kurland in
January.
Expands operations to Mexico, Nigeria, and Peru.
2015
105
Bima
Overview
Bima, founded in 2011, operates a microinsurance platform in emerging markets. The companys
business model is to provide product development, distribution, marketing, underwriting, and
administration services by connecting mobile operators, policyholders, and insurance providers.
Bima sells life, health, and accident insurance with an estimated monthly premium of USD $0.75-1.00
per subscriber, which is paid via mobile airtime reloads. Revenue is shared between Bima, the mobile
operator, and the insurance provider at an estimated 1/3 equal split.
Over the past 3.5 years since its founding, Bima has grown rapidly to over 13 million registered
insurance subscribers, and currently has partnerships with 6 mobile operators and 5 insurers across 13
countries and 3 continents.
106
Management has indicated that they plan to expand beyond mobile-operator-linked insurance products,
shifting from a purely intermediary role to a fully-fledged insurance and financial services provider. In
doing so, Bima will incur a greater proportion of underwriting and financing risk and capture a higher
share of wallet, revenue and profits.
107
Valuation
No official financial results have been released for Bima, so our estimates are subject to a high degree of
uncertainty. However, historical subscriber data shows that the company is expanding very rapidly,
growing subscribers 86% year-over-year in 2014. Assuming a monthly average premium of USD $0.75
and a 33% revenue share to Bima, we estimate 2014 revenue of $39 million at an implied sales multiple
of 1.7x.
Bima financial projection
($ mm, subscribers in mm)
Total subscriber base (mm)
% growth
2011
0.1
2012
2
1900%
2013
7
250%
Valuation ($ mm)
KINV % interest
KINV interest value ($ mm)
Estimated Financials*
Monthly premium per subscriber ($)*
33% revenue share to BIMA*
BIMA revenue*
Estimated P/S multiple*
2014
13
86%
2015 E
18
40%
2016 E
24
30%
$64
39%
$25
$0.75
33%
$0
$0.75
33%
$6
$0.75
33%
$21
$0.75
33%
$39
1.7x
2017 E
28
20%
$140
39%
$55
$0.75
33%
$54
$0.75
33%
$70
$0.75
33%
$84
1.7x
Our financial projection for 2015-2017 assumes decelerating growth in subscribers, flat monthly
premium per subscriber, and a 33% revenue share to Bima. In 2017, with 28 million subscribers and $84
million in revenue, we estimate fair value for Bima of $140 million at a 1.7x sales multiple.
We believe a 2017 sales multiple of 1.7x is reasonable, considering the life insurance industry average
P/S multiple of 0.90x and insurance broker industry average multiple of 2.0x. Given its rapid growth,
large target market, and potential for product expansion and upselling, we believe Bima warrants a
higher multiple closer to an insurance intermediary.
Management and Ownership Structure
Gustaf Agertson, CEO. Previous experience with Tele2.
Mathida Strom, Deputy CEO and Head of Business Development. Previous experience with Value
Partners.
Ola Johnsson, CFO. Previous experience with Modern Times Group and CDON Group.
Chris Bischoff, Investment Director at Kinnevik, serves on the Board. Stewart Langdon, Partner at
LeapFrog Investments, serves on the Board.
108
17%
Leapfrog
Investments
44%
39%
Kinnevik
Digicel
Timeline
2010 Bima founded. First products sold via partnership with Tigo Ghana.
2014
2014
Raised USD $5 million financing from Digicel at a $64 million valuation in December.
109
110
2010
589
5.2%
-1.1%
2011
554
-5.9%
-5.1%
-8.0
29.1
-50.4
27.5
2012
606
9.4%
-2.9%
8.7
-30.6
-12.4
2013
653
7.8%
-0.8%
17.6
-18.6
9.9
2014
617
-5.5%
3.5%
21.3
6.9
11.5
The company is currently valued at 16.9x cash flows from operations, 10.5x EBIT multiple and 0.4x sales
multiple. We did not change Transcoms 2017 estimated valuation from the 2014 4Q mark.
Black Earth Farming
Black Earth Farming Ltd. owns 179,921 hectares (444,594 acres) of harvestable farmland in Russias
Central Black Earth Region. During the first 9 months of 2014, it generated revenue of USD $64 million
and EBITDA of $14 million on 245,038 tons of crops sold. Shares are listed on NASDAQ OMX Stockholm
under the symbol BEF-SDB, at USD $76 million market capitalization. Kinnevik owns 24.9% of shares
outstanding.
For the 2017 NAV estimate, we did not change Black Earth Farmings value from 2014 4Q.
Rolnyvik
Rolnyvik owns the Barciany and Podlawki farms in Poland, totaling 6,705 hectares (16,568 acres).
Rolnyvik is a 100% wholly-owned subsidiary of Kinnevik.
Rolnyvik Historical Operating Income, 2007-2012
(SEK mm)
2007
2008
2009
Operating income
9
14
12
2010
16
2011
23
2012
19
As of 2014 4Q, Kinneviks fair value for Rolnyvik was SEK 250 million (USD $30 million), or $2,000 per
acre. We did not change Rolnyviks 2017 estimated valuation from the 2014 4Q value.
Metro
Metro International publishes a free newspaper distributed in over 150 cities in 23 countries across
Europe, Asia, North and South America. In 2013 readership was approximately 18.3 million. The
company is a 100% wholly-owned subsidiary of Kinnevik, and as of 2014 4Q was valued at SEK 321
million (USD $30 million).
Metro Historical Financials, 2006-2014
(EUR mm)
Revenue
% change
Adjusted EBIT
2006
417
17
2007
331
-21%
(19)
2008
295
-11%
(20)
2009
191
-35%
(3)
2010
207
8%
5
2011
197
-5%
13
2012
194
-2%
10
2013
149
-23%
10
2014
109
-27%
(4)
111
The prospects for physical freesheet newspapers are quite poor, as seen by the cumulative -74% decline
in Metros revenue from 2006-2014, and cumulative total adjusted EBIT of EUR 8 million over 9 years.
Due to the competition from electronic media and rapid decline in readership, we believe Kinnevik will
write down the Metro business to zero within 3 years. For Kinneviks 2017 NAV estimate, we therefore
assigned zero value to the Metro operating business. However, the SEK 140 million in net cash within
Metro was kept intact from 2014 4Q.
112
113
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