By Arno Schuetze and Harro Ten Wolde
FRANKFURT (Reuters) - Shares in Rocket Internet (DE:RKET) plunged 14 percent within minutes of their stock market debut in Frankfurt on Thursday as investors gave Europe's largest internet listing since 2000 a cold welcome.
Global e-commerce investor Rocket had sold shares at the top of its price range and brought forward the debut by a week, citing exceptional investor demand.
The shares started trading at the offer price of 42.50, giving the firm a market value of 6.7 billion euros ($8.5 billion), but fell to 36.66 euros after a few minutes. By 1515 GMT (1115 EDT), they were down 11 percent at 37.50 euros.
Analysts said investors had bought shares hoping to ride the tech listing euphoria which culminated in Alibaba's (N:BABA) bumper New York flotation but had been concerned about the Berlin-based company's lack of profitability.
"Many investors subscribed for far more shares than they normally would have, hoping for a quick return. When some investors saw others getting out, they did the same," said an equity capital markets banker, who declined to be named because he is not authorized to speak publicly.
As Rocket is still loss-making, investors had a hard time arriving at their own fundamental valuation of the group using traditional methods such as applying an earnings multiple.
The disappointing opening, which came a day after a lackluster stock market debut by Europe's largest online fashion retailer Zalando (DE:ZALG) in Frankfurt, could lead to more caution in upcoming listings.
"Investors planning to buy into upcoming German IPOs like TLG, Tele Columbus or Scout24 will now make sure to pay close attention to the fundamentals and will not allow themselves to get carried away again by the momentum of the events," the banker said.
The Rocket offer raised 1.4 billion euros, excluding an over-allotment option. That is almost double the 750 million euros the company said it expected to raise when it announced its listing on Sept. 10.
Rocket Internet has set up e-commerce sites and online marketplaces for everything from taxis to meal deliveries in more than 100 countries. The group's revenue, which it makes by charging consultancy fees to the companies it sets up, rose 43 percent to 47 million euros in the first half of 2014, while it made a net loss of 13.3 million as costs rose.
The Rocket management team went into a closed booth in the stock exchange immediately after ringing the IPO (initial public offering) bell, avoiding journalists' questions over the pricing of the debut.
RISK PROFILE
Oliver Samwer - who founded Rocket in 2007 with his brothers Alexander and Marc - later played down the share fall.
"One should look at shares from a long-term perspective and not from just one day, a week or a month," he said.
Germany's blue chip index DAX (GDAXI) was down 1.7 percent while the technology-oriented TecDax (TECDAX) was down 2.4 percent.
Union Investment fund manager Michael Muders said Rocket Internet had a different risk profile than DAX bluechips.
"If you want to invest in Rocket Internet you have to be convinced that the Samwers can establish an idea in the market faster than anyone else. And you have to believe in the growth of emerging markets," he said.
"A professional investor needs to decide it he can live with the risk and volatility," he added.
The IPO organizers pinned Rocket's performance to a subdued stock market as well as the listing of Zalando, a company launched by Rocket Internet, which was down about 14 percent on Thursday after closing at exactly its issue price on Wednesday
"The poor performance of the Zalando shares in their debut clearly weighed on Rocket Internet," said one of the IPO organizers, asking not to be named.
Rocket says it can launch a company within 100 days by drawing on its expertise in areas such as finance, communications, marketing and business intelligence, helping it start an average of three to six new firms a year.
It aims to replicate the success of Amazon (O:AMZN) and Alibaba in markets that the U.S. and Chinese groups have yet to dominate such as Africa, Latin America, Russia and other parts of Asia. Last year, its top 11 ventures including Russian fashion site Lamoda and Indian online store Jabong generated aggregated net losses of 442 million euros.
Rocket had initially offered its shares in a 35.50-42.50 euros price range. Berenberg, JP Morgan and Morgan Stanley were joint coordinators of the offer, while BofA Merrill Lynch, Citigroup and UBS were joint bookrunners.
(Additional reporting by Alexander Hübner; Editing by Pravin Char)