Rocket Internet raises fresh capital after food spending spree

(adds CEO comments, investor reaction, context throughout)

By Eric Auchard

FRANKFURT, Feb 13 (Reuters) - Germany's Rocket Internet (Xetra: RKET.DE - news) went to investors with a capital hike just four months after its stock flotation, asking for fresh funds following a 1 billion euro spending spree that targets online food takeaway businesses as the next big thing.

The Berlin-based company, Europe's biggest Internet player thanks to its stakes in more than 100 start-ups ranging from fashion to finance, raised 1.4 billion euros ($1.6 billion) in its October IPO. It added a further 588 million euros on Friday that it said would allow it to continue to look around.

So far Rocket has ploughed the bulk of the money it has raised into investments in online takeaway food and grocery delivery start-ups that it says has created the largest takeout food delivery network outside China.

Shares (Frankfurt: DI6.F - news) of the volatile stock fell 10 percent then trimmed that to close down just 2.5 percent, as many investors looked past the dilutive effect of increasing its share base by 7.8 percent. The stock remains 23 percent above its opening initial public offering price.

"It makes perfect sense to be opportunistic and raise more capital," said Union Investment fund manager Michael Muders, an IPO investor who still holds the stock. "They are becoming the biggest gorilla in the room" in many markets.

The plunge into food delivery was only a small part of the story Rocket sold investors in its IPO prospectus, which described a general-purpose e-commerce strategy with many lines of business, using cash to turn a string of minority stakes into majority ones.

But its Chief Executive Oliver Samwer says he has cracked the code of takeaway delivery with a strategy that now targets 5 million neighborhoods in more than 64 countries, using central technology functions run from its Berlin headquarters.

He argues Rocket can win over consumers and local restaurants to a vastly superior online food takeaway approach, displacing a tired old market that relies on random menu drops, time-consuming phone orders and error-prone food deliveries.

"I feel like the year 1998 again, (when) we hit the jackpot," Samwer told an investor meeting last week, where he revealed Rocket's push into what he called a vast and potentially highly profitable food delivery business that can generate consistent 40 percent operating margins.

1998 was the watershed year of the dot-com era and the year before Samwer and his two brothers founded, then quickly sold, German online auction firm Alando.de to eBay for $43 million.

GLOBE-HOPPING

Since then, the Samwer Brothers have built and sold German versions of eBay, Facebook (NasdaqGS: FB - news) , Groupon (NasdaqGS: GRPN - news) and others. They describe Rocket as an Amazon or Alibaba for the rest of the world.

While rivals dominate in the United States, Europe and China, Rocket is staking out the rest of the world, targeting emerging markets across Africa, Asia, Latin America, the Middle East and Eastern Europe, a globe-hopping strategy that Samwer compares to international telecoms giant Vodafone.

This dot-com revival story makes Rocket prized by its mostly institutional shareholder base as a high-growth play on Web and emerging market trends, despite risks. Many see it as a launchpad for future stock market listings of everything from online fashion to home furnishings to personal finance firms.

But disbelievers question an emerging markets strategy that puts Rocket in highly unpredictable places, backing companies with short track records and small initial revenues that make valuing the parent company tricky.

Sarah Simon, an analyst with brokerage Berenberg, one of Rocket's IPO underwriters, warned in a November research report that the company's cash-hungry spending ways could eventually limit its ability to take bigger stakes in future investments.

Despite these risks, she said that Rocket has had a low failure rate, achieving a return of 39 times on cash invested.

Samwer told investors Rocket's latest moves propel it into "the biggest market you can be in ... the emerging frontier of e-commerce: food and groceries." ($1 = 0.8767 euros) (Additional reporting by Lionel Laurent and Simon Jessop in London; Editing by Sophie Walker)