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Long: Investment AB Kinnevik (KINVB: SS)

by Joshua Soong, CFA

About our firm


Deerwood Capital, LLC is a California-based registered investment adviser with a fundamental valueoriented approach to investing in publicly traded securities. Deerwood selectively invests in undervalued
companies across a broad spectrum of industries and market capitalizations. We were founded in 2009
to provide a concentrated, non-leveraged, low-turnover alternative to the typical alternative investment.
Our investment philosophy is based on buying securities at discounts to their intrinsic value and treating
share ownership as equivalent to owning the entire business. We invest in businesses with sustainable
competitive advantages, purchased at prices yielding significant appreciation potential, and run by
skilled management aligned with shareholders.

About the author


Before starting Deerwood in April 2009, Mr. Soong was an Equity Analyst at Picoco,
LLC, a family office in Newport Beach, where from 2006-2009 he was responsible for
investments in the retail and transportation sectors. From 2004-2005, he was a
Trader at Citadel, where he managed a portfolio of electricity and natural gas swaps,
forwards and options. Mr. Soong graduated with dual B.S. degrees from MIT in EECS
and Economics, and earned the CFA designation in 2009.
Special acknowledgement goes to Deerwood Analyst Connor Ni for his valuable
contributions to this report.

_____________________________________________________________________________________
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.

Investment AB Kinnevik (KINVB: SS)


Executive Summary: Co-invest with Swedish value-oriented owner-operators with a 30-year track
record of 16% annual returns while acquiring a unique portfolio of emerging market online, ecommerce, and telecom businesses at a discount to net asset value.
Key Figures (as of February 27, 2015)
Share Price:
SEK 281/share
Market Cap:
SEK 77.9 billion (USD $9.3 billion)
Annual dividend:
SEK 7.25 per share (2.58% yield)
ADV:
700,000 shares per day
2017 target price:
Estimated 3-year total return:

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.

Millicom and Tele2


3% 3%

Zalando

5%

6%

Rocket Internet

7%

41%

Global Fashion Group


Other e-commerce &
marketplaces

13%

Entertainment
Financial Services & Other
23%

Avito

Source: Kinnevik 2014 4Q Report

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.

Why Kinnevik, Why Now?


Kinnevik has several differentiating and favorable characteristics compared to other publicly traded
investment holding companies in the emerging markets telecom/media/technology space, such as
Naspers, Softbank, and Rocket Internet, which we believe are its closest comparables.
The first difference is that Kinnevik, with a market capitalization of USD $9.3 billion is much smaller than
Naspers ($58 billion market cap), and Softbank ($74 billion market cap), and thus has higher return
potential. Kinnevik has not (yet) scored a home-run investment that accounts for the majority of its
value, as in the cases of Naspers/Tencent and Softbank/Alibaba. Generally, higher returns come from
buying before the home-run investment becomes obvious, not after.
I skate to where the puck is going to be, not to where it has been -Wayne Gretzky

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.

NAV Growth Forecast, 2015-2017


Based on an individual analysis of each company in Kinneviks portfolio, we estimate that Kinneviks NAV
per share will increase 47% to SEK 446 from 2015-2017. Of the total cumulative growth in NAV, 53% is
attributed to unlisted private investments and 47% is attributed to publicly traded investments.

Kinnevik NAV Growth Forecast, 2015-2017


475

450

425

400

375

Private unlisted investments


(53% of total gain)

350

325

300

Publicly listed investments


(47% of total gain)

275

2017 ending NAV

Metro

Financial Services

Other marketplaces

Saltside

Quikr

Avito

General e-commerce

Home and Living

Global Fashion Group

Qliro

Modern Times Group

Tele2

Millicom

Zalando

Rocket Internet

2014 ending NAV

250

Source: Deerwood estimates

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.

Kinnevik Estimated Net Asset Value, 2017

($ mm, SEK mm)


Online
Rocket Internet
Zalando
Global Fashion Group
Lamoda
Dafiti
Namshi
Jabong
Zalora
Home and Living
Home24
Westwing
Other
Qliro
Other E-commerce
Lazada
Linio
Jumia
Konga
Other
Marketplaces
Avito
Quikr
Saltside
Wimdu
Other
Telecom
Millicom
Tele2
Entertainment
Modern Times Group
Metro
Net cash, Metro
Other
Financial Services & Other
Bayport
Transcom
Black Earth Farming
Bima
Rolnyvik
Other
Net Cash
Debt
Total
Shares outstanding
NAV per share

100%
Valuation
(USD)

2014 4Q Valuation
KINV
NAV
Ownership
Contribution
(SEK)

2017 Projected Valuation


100%
KINV
NAV
Valuation
Ownership Contribution
(USD)
(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

Source: Kinnevik, company data, Deerwood estimates

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 and Share Ownership


We believe the primary decision makers for Kinnevik are Cristina Stenbeck, Executive Chairman, and
Lorenzo Grabau, CEO, who work in close conjunction with the Board of Directors and the Investment
Committee on all aspects of running the company.
Cristina Stenbeck, Executive Chairman
Cristinas first role within the Kinnevik group was joining the board of Invik & Co., a financial services
spin-off, in 1997 at the age of 21. She was appointed Vice Chairman of Kinnevik in 2003, and Chairman in
2007. She serves on the boards of Qliro, Millicom, Modern Times Group, Tele2, and Zalando.
Ms. Stenbeck, through her 50% stake in holding company Verdere, Sarl, owns 14.8 million KINV Class A
shares worth USD $502 million, representing 5.3% of capital and 22.4% of total voting power.
Lorenzo Grabau, Chief Executive Officer
Lorenzo was appointed CEO in 2014, replacing former CEO Mia Brunell Livfors. Before being appointed
CEO, he served on the Board of Kinnevik from 2013-2014. Previously, he worked in investment banking
at Goldman Sachs from 1994-2011. He serves on the boards of Modern Times Group, Millicom, Zalando,
Avito, Qliro, and Tele2.
Mr. Grabau owns 955,000 Class B shares, worth USD $33 million, the majority of which were purchased
with his personal funds in May 2013 when he joined Kinneviks Board of Directors.
Joakim Andersson, Chief Financial Officer of Kinnevik
Joakim has been with Kinnevik since 2007, and was formerly the Treasurer of Kinnevik until February
2015, when he replaced former CFO Mikael Larsson. He owns 10,333 Class B shares.
Other executives of note are Investment Directors Anders Kronborg, Stina Andersson, Christoph
Barchewitz and Chris Bischoff, who were mostly hired during 2012-2013. Their role is to source new
investments and help manage the existing portfolio of listed and unlisted companies.
Management and Insiders Ownership
The Stenbeck, Klingspor, and von Horn founding families control the company with an aggregate 58% of
voting power and 14.6% of capital worth USD $1.4 billion. Class A shares have 10 votes per share and
Class B shares have 1 vote per share. We believe managements significant ownership aligns their
interests with the rest of the shareholder base.
Kinnevik Beneficial Owners
A Shares B Shares Capital
Cristina Stenbeck
14.8
0.0
5.3%
Max Stenbeck
14.8
0.0
5.3%
Klingspor Family
6.5
2.2
3.1%
von Horn Family
2.0
0.4
0.9%
JPM Chase
0.0
32.6
11.7%
Other shareholders
4.4
200.2
73.7%
Total
42.4
235.4
100%

Votes Value ($ mm)


22.4%
$502
22.4%
$502
10.2%
$295
3.1%
$82
5.0%
$1,111
37.0%
$6,970
100%
$9,462

Source: Kinnevik 2013 Annual Report

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

Kinneviks Investing Track Record


In the tables below, we present the results of our independent analysis of Kinneviks investment
performance during 2007-2014, split between Online and Non-Online portfolios. We chose the period
starting in 2007 because that was the year current management assumed full control.
Since our calculations are derived from publicly available information, our calculated IRRs are mostly
lower compared to managements IRR numbers in the 2014 4Q Presentation, due to undisclosed timing
of specific company financing rounds within a calendar year and treatment of dividends from Rocket
Internet. However we are confident that our results are very close to actual economic performance,
because our multiple-on-invested capital (MOIC) numbers are almost identical to managements MOIC
numbers, with the only differences coming from our inclusion of the Kontakt East investments from
2006-2008 in Avitos accumulated investment, and our assumption of an initial investment of SEK 747
million in Rocket Internet, compared to Kinneviks estimated assumption of SEK 974 million.
Online investments track record, 2007-2014
(SEK mm)
Rocket Internet
Saltside
Zalando
Avito
Konga
Westwing
GFG
BigCommerce + Lazada
Home24
Wimdu/Airizu
Other E-commerce
CDON
Quikr

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

Non-online investments track record, 2007-2014


Accumulated Accumulated
Investment Date of initial
Date of
IRR
MOIC
(SEK mm)
return
investment
period (yrs)
Investment
valuation
Milvik/Bima
206
84
1
2013
2014/12
99%
2.5x
Bayport
1,032
573
7
2007
2014/12
12%
1.8x
Tele2
24,819
12,548
8
2006
2014/12
11%
2.0x
Millicom
27,997
16,326
8
2006
2014/12
8%
1.7x
Korsnas
13,635
11,559
7
2006
2013/12
3%
1.2x
MTG
3,936
4,471
8
2006
2014/12
-2%
0.9x
Transcom
494
1,148
8
2006
2014/12
-11%
0.4x
Metro
461
2,661
8
2006
2014/12
-21%
0.2x
Black Earth Farming
151
791
8
2006
2014/12
-23%
0.2x
Source: Kinnevik reports, company data, Deerwood estimates
*IRRs differ from managements IRR data in 2014 4Q, due to undisclosed timing of specific financing rounds.
*Avito accumulated investment includes 2006-2008 Kontakt East investment totaling SEK 222 million.
*Saltside accumulated return based on 1/2015 financing round at estimated USD $112 million valuation.
*Non-Online IRRs assumes initial investment at Kinnevik's fair value mark at 12/31/06, includes dividends received, and adjusted
for 2009 Emesco acquisitions.

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

Kinnevik cumulative cash flows by category, 2007-2014


Cash Flow
(SEK mm)
2007 starting cash + financial assets
Dividend and interest income
Cash flows from operations
Sale of financial assets
Sale of subsidiaries
Investment in financial assets
Dividends paid
Net debt reduction
CAPEX
Interest
Acquisitions
Share repurchase
Unrealized gains on financial assets
2014 ending cash + financial assets

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

Total cash inflows


Total cash outflows
Unrealized gains on financial assets
Total gain, 2007-2014

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

Source: Kinnevik annual reports

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

Historical Discount to NAV


Similar to other investment holding companies, Kinnevik shares have historically traded at an average
ratio of market price to net asset value of 78% (discount of 22%), from 2005-2014.
KINVB price to NAV ratio, 2005-2014
120%
100%
80%
60%
40%
20%
0%
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: Kinnevik annual reports, Nasdaq OMX Stockholm

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

Kinnevik co-investors, 2006-2014


Co-Investor
Rocket/Global Founders
Access Industries
Holtzbrinck Ventures
Summit Partners
Tengelmann
JPMorgan
Blakeney Management
Naspers
Tiger Global
Verlinvest
Vostok Nafta
Accel Partners
Anders Holch Povlsen
Baring Vostok
Brummer & Partners
CDC Group
Cohen Capital Advisors
Digicel

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

Three Megatrends Driving E-commerce Growth in Emerging Markets


The 2006 paradigm shift in Kinneviks investment focus to the online/e-commerce sector was not by
accident, but a deliberate, calculated strategy to benefit from three megatrends that are profoundly
changing how emerging market consumers buy, sell, and trade goods and services online:
1. Developing countries mobile penetration rates are approaching 100%, which leads to
smartphone penetration of 100% and internet penetration of 100%.
2. Higher internet penetration enables consumers to shift spending from offline to online. Ecommerce (both B2C and C2C) will grow much faster than offline retail, particularly in emerging
markets that lack the infrastructure necessary for a brick-and-mortar store network.
3. The proliferation and export of proven business models enables investors (like Kinnevik and
Rocket Internet) to build multi-billion-dollar companies without technological, product, or
market risk (only competition risk remains). What works in the West works in the East.
Over the next 10 years, we believe Kinneviks portfolio of companies are well-positioned to become the
regional equivalents of Amazon, Alibaba, Craigslist, and Zalando, and are confident in our forecasts of
high double digit revenue growth for these companies because of the tailwinds from these trends.
Megatrend #1 Mobile, smartphone, and internet penetration will rise to 100% everywhere
It is a given that that the internet is universally useful, its utility increases as more people use it, and all
people want access to the internet. In developing countries without adequate fixed broadband
infrastructure, mobile phones are the primary way to get online. The good news is that mobile phone
penetration in all regions is forecast to reach 100% by 2017, and is already over 100% in CIS, Latin
America, and the Middle East.

Source: A.T. Kearny, The Mobile Economy 2013 Presentation

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

Source: KPCB, Mary Meeker Internet Trends 2014 Presentation

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.

Source: KPCB Mary Meeker Internet Trends 2014 Presentation

There is strong, material upside for growth in smartphone adoption, which implies high upside in
internet usage and penetration.

16

Source: KPCB Mary Meeker Internet Trends 2014 Presentation

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.

Source: Naspers, 2014 1Q Earnings Presentation

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.

Source: OEX Divante Presentation

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

Source: Naspers 2014 1Q Earnings Presentation

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.

Source: Rocket Internet 2014 1H Results Presentation

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.

Retail Space per Capita (sqft)


50
45
40
35
30
25
20
15
10
5
0

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

eBay/Amazon ($246 bn)


Amazon ($176 bn)
ICQ/Facebook/Twitter ($250 bn)

Alibaba ($212 bn)


JD ($37 bn)
Tencent ($163 bn)

Latin America

eBay ($70 bn)


Amazon ($176 bn)

MercadoLibre ($6 bn)


B2W Digital ($2 bn)

Europe

Zappos ($1 bn)

Zalando ($6 bn)

India

Amazon ($176 bn)


Craigslist ($1 bn)

Flipkart ($11 bn)


OLX (owned by Naspers)

Source: Company data, market data

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

Kinneviks online portfolio original vs. imitator comparison


Kinnevik Imitators
Zalando
Linio
Jumia
Lazada
Jabong
Zalora
Lamoda
Dafiti
Quikr
Avito
Westwing
Home24

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

Valuation ($ bn) Growth Potential


Acquired by Amazon
n/a
176.5
593x
176.5
325x
176.5
145x
6.6
15x
6.6
11x
6.6
8x
6.6
7x
4.8
14x
4.8
5x
1.9
4x
1.9
2x

Source: Company data, Deerwood estimates

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

2017 NAV Valuation Model and Methodology


The forecast for Kinnevik's 2017 NAV of SEK 446 per share is derived from our individual company
valuation estimates for each of the companies currently in the portfolio.
Kinnevik Estimated Net Asset Value, 2017

($ mm, SEK mm)


Online
Rocket Internet
Zalando
Global Fashion Group
Lamoda
Dafiti
Namshi
Jabong
Zalora
Home and Living
Home24
Westwing
Other
Qliro
Other E-commerce
Lazada
Linio
Jumia
Konga
Other
Marketplaces
Avito
Quikr
Saltside
Wimdu
Other
Telecom
Millicom
Tele2
Entertainment
Modern Times Group
Metro
Net cash, Metro
Other
Financial Services & Other
Bayport
Transcom
Black Earth Farming
Bima
Rolnyvik
Other
Net Cash
Debt
Total
Shares outstanding
NAV per share

100%
Valuation
(USD)

2014 4Q Valuation
KINV
NAV
Ownership
Contribution
(SEK)

2017 Projected Valuation


100%
KINV
NAV
Valuation
Ownership Contribution
(USD)
(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

Source: Kinnevik, Rocket Internet, company data, Deerwood estimates

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.

Source: Kinnevik Capital Markets Day, September 2014

Management and Ownership Structure


The Samwer brothers, Oliver, Alexander, and Marc, are successful serial entrepreneurs. They founded a
German version of eBay, Alando.de, and sold it to eBay for $43 million in 1999. Then they sold another
start-up, Jamba!, to VeriSign for $273 million in 2004. Later the brothers started their own venture
capital company, European Founders Fund (predecessor to Global Founders Capital), which seeded
Rocket Internet and now owns 38% of shares outstanding.
CEO Oliver Samwer is the architect behind Rocket. In an email he sent out to his global team in 2011, he
described himself as the most aggressive guy on internet on the planet and that he will die to win.
While some might consider Mr. Samwer a controversial figure, we consider his ambition and
commitment favorable to shareholders and a necessity in the fiercely competitive and fast-moving startup environment.
The following chart demonstrates Rockets track record under Oliver's leadership in mass-producing ecommerce start-ups and raising financing. These ventures have generated 22x- 264x money-on-money
multiples all within 2-5 years.
26

Rocket Internet selected money-on-money multiples, 2010-2014

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

Source: Rocket Internet 2014 IPO Prospectus


*Money-on-money multiple includes distributions but excludes Holtzbrinck contribution in-kind

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

Source: Rocket Internet data

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.

Source: Kinnevik Rocket Capital Markets Day, May 2014

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

Rocket Internet Estimated Value, 2017

($ 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)

2017 Projected Valuations


100%
Rocket
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%

Net Asset Value

$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

Source: Rocket and Kinnevik Data, Deerwood estimates


*KINV % interest and RKET cash and shares outstanding adjusted for 2/2015 RKET share issuance of 12 mm shares and
acquisition of 30% of Delivery Hero

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.

Source: Zalando Company Presentation, October 2014

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

Source: Zalando Company Presentation, October 2014

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%

Source: Company data

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

Source: Zalando Company Presentation, October 2014

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

(EUR mm, except per customer)

Active Customers (millions)


% growth
Revenue/Active Customer (EUR)
% growth
Revenue
% growth

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)

2017 Revenue Multiple


Exchange Rate (EUR-USD)
2017 Zalando EV ($ mm)
+ net cash
2017 Zalando Equity Valuation

2.0x
1.15
$7,916
$1,173
$9,089

Kinnevik % interest
2017 KINV interest value ($ mm)

32.0%
$2,912

Source: Zalando data, Deerwood estimates

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

Source: Morningstar, Yahoo, Company filings, Deerwood estimates


Active customers in millions, Revenue/Customer in $

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%

Global Founders Gmbh


Anders Holch Povlsen
Yuri Milner

3.2%

Holtzbrinck Ventures
5.1%

Tengelmann
Len Blavatnik

6.9%

Other Shareholders
15.0%

7.1%

Public Free Float

9.4%

Source: Zalando data

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

Global Fashion Group

Global Fashion Group (GFG) Overview


Global Fashion Group consists of five leading fashion e-commerce businesses, Dafiti (Latin America),
Jabong (India), Lamoda (Russia & CIS), Namshi (Middle East) and Zalora (South East Asia & Australia).
The group operates across five continents with a focus on growth markets, covering 23 countries with a
EUR 330 billion fashion market and population of over 2.5 billion people. We estimate GFG has a total of
5.7 million active customers and USD $845 million annual revenue in 2014.

Source: Kinnevik Capital Markets Day Presentation, September 2014

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

Source: McKinsey Consumer and Shopper Insights, September 2014

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.

Source: Kinnevik Capital Markets Day, September 2014

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

Global Fashion Group competitive landscape


Year
Launched

Monthly
Unique
Visitors
(millions)

Facebook
Likes
(millions)

Alexa Traffic SimilarWeb


Private Label Merchants on
Rank in Key Traffic Rank in
Offering
platform
Country
Key Country
Brazil

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+

United Arab Emirates


Namshi

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

Online fashion retailer comparison


($ mm)

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

Source: Morningstar, Yahoo, Company filings, Deerwood estimates


*Estimated figures if 2014 4Q financials unavailable
*Active customers in millions, Revenue/Customer in $

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)

Active Customers (000s)


% growth
Revenue/Active Customer (BRL)
% growth
Revenue (BRL mm)
% growth
EBITDA
EBITDA Margin
Cash (Deficit)
2014 Valuation (mm USD)

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

2017 Revenue Multiple


Exchange Rate (USD-BRL)
2017 Dafiti Valuation ($ mm)
KINV % interest
KINV % interest post-dilution
2017 KINV interest value ($ mm)

3.0x
2.74
$1,247
26.1%
23.1%
$288

Source: Kinnevik, Rocket Internet data, Deerwood estimates

40

Jabong financial projection


(INR mm, except per customer)

Total orders (mm)


% growth
Revenue/Order (INR)
% growth
Revenue (INR mm)
% growth
EBITDA
EBITDA Margin
Cash (Deficit)
Valuation ($ mm)

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

2017 Revenue Multiple


Exchange Rate (USD-INR)

3.5x
61.75

2017 Jabong Valuation ($ mm)


KINV % interest
KINV % interest post-dilution
2017 KINV interest value ($ mm)

$2,217
26%
24.9%
$579

Source: Kinnevik, Rocket Internet data, Deerwood estimates

Lamoda financial projection


(RUB mm, except per customer)

Active Customers (000s)


% growth
Revenue/Active Customer (RUB)
% growth
Revenue (RUB mm)
% growth
EBITDA
EBITDA Margin
Cash (Deficit)
2014 Valuation ($ mm)

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

2017 Revenue Multiple


Exchange Rate (USD-RUB)
2017 Lamoda Valuation ($ mm)
KINV % interest
KINV % interest post-dilution
2017 KINV interest value ($ mm)

3.0x
67.00
$1,306
26%
24.2%
$316

Source: Kinnevik, Rocket Internet data, Deerwood estimates

41

Zalora financial projection


(EUR mm, except per customer)

Active Customers (000s)


% growth
Revenue/Active Customer (EUR)
% growth
Revenue (EUR mm)
% growth
EBITDA
EBITDA Margin
Cash (Deficit)
2014 Valuation ($ mm)

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

2017 Revenue Multiple


Exchange Rate (EUR-USD)

3.0x
1.15

2017 Zalora Valuation ($ mm)


KINV % interest
KINV % interest post-dilution
2017 KINV interest value ($ mm)

$842
26.1%
21.6%
$182

Source: Kinnevik, Rocket Internet data, Deerwood estimates

Namshi financial projection


(AED mm, except per customer)

Active Customers (000s)


% growth
Revenue/Active Customer (AED)
% growth
Revenue (AED mm)
% growth
EBITDA
EBITDA Margin
Cash (Deficit)
2014 Valuation ($ mm)

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

Source: Kinnevik and Rocket Internet filings, Deerwood estimates

Revenue Multiple
Exchange Rate (USD-AED)
2017 Namshi Valuation ($ mm)
KINV % interest
2017 KINV interest value ($ mm)

3.5x
3.67
$565
26%
$147

Source: Kinnevik, Rocket Internet data, Deerwood estimates

42

Management and Ownership Structure


GFG businesses are led by high quality management teams with relevant experience.

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

Lamoda Niels Tonsen


Dominik Picker
Florian Jansen
Burkhard Binder

Rocket Internet, EBS Business School


Aalto-yliopisto
McKinsey, London School of Economics
Rocket Internet

Zalora

Harry Markl
McKinsey, Siemens
Cooper McGuire
Goldman Sachs, Viet Thai International
Magnus Grimeland McKinsey, Rocket Internet

Namshi

Hosam Arab
Faraz Khalid
Hisham Zarka

Harvard Business School, Waha Capital, GE


Microsoft, The Wharton School
McKinsey, Google

Source: Kinnevik Rocket Capital Markets Day, May 2014

GFG ownership structure

26.10%
43.0%

Kinnevik
Rocket Internet AG
Access Industries

23.5%

Other Shareholders

7.4%

Source: Kinnevik and Rocket data

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

2012 Jabong started operations in early 2012 in India.


2014 Raised $100 million in funding, $27.5 mm of the funding from CDC Group.

Lamoda 2011
2012
2013
2013
2014

Lamoda.ru founded in early 2011 in Russia and the CIS.


Raised an estimated $60mn (46.6mn) from JP Morgan.
Secured $130 mm from Access Industries, Summit Partners and Tengelmann.
Further ramped up own delivery fleet LamodaExpress.
Secured a $10 mm investment from the International Finance Corporation.

Zalora

2012
2012
2013
2013
2013

Zalora launched its various localized sites.


JP Morgan invested in Sep 2012.
Received US $26 million investment from German retail company Tengelmann.
Raised $100 million from Summit Partners, Kinnevik, Verlinvest, and Tengelmann.
Raised $112 million from investors including Access Industries and Scopia Capital.

Namshi

2011 Namshi founded in October 2011.


2012 Announced US $20 million funding from J.P. Morgan and Blakeney Management.
2013 Raised $13 million led by Summit Partners to sustain growth in Middle East.

Source: Kinnevik data, news articles

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.

Source: Kinnevik Capital Markets Day, September 2014

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

Source: Kinnevik Capital Markets Day, September 2014

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

Source: Similarweb, 2015 February

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

2013 T9M 2014 T9M


580
1,160
100%
388
637
64%
400
630
58%
71
125
77%

Source: Rocket Internet data

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)

Active Customers (000s)


% growth
Revenue/customer ()
% growth
Revenue
% growth
EBITDA
EBITDA Margin
Cash (Deficit)
Valuation ($ mm)

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

2017 Revenue Multiple


Exchange Rate (EUR-USD)

1.5x
1.15

2017 Home24 Valuation ($ mm)


KINV % interest
2017 KINV interest value ($ mm)

$1,086
20.0%
$217

Source: Kinnevik, Rocket Internet data, Deerwood estimates

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%

Source: Kinnevik, Rocket Internet data

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.

Source: Westwing.de website

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

Source: Kinnevik Rocket Capital Markets Day 2014

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

Source: Similarweb, 2015 February

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)

Active Customers (000s)


% change
Revenue/customer ()
% change
Revenue
% change
EBITDA
EBITDA Margin
Cash (Deficit)
Valuation ($ mm)

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

2017 Revenue Multiple


Exchange Rate (EUR-USD)

1.5x
1.15

2017 Westwing Valuation ($ mm)


KINV % interest
2017 KINV interest value ($ mm)

$923
13.0%
$120

Source: Kinnevik, Rocket Internet, Deerwood estimates

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

Management and Ownership Structure


Stefan Smaller, CEO and co-founder. Previous experience with Bain & Co., dooyoo, Friendity, and
Daimler.
Delia Fischer, co-founder & Style Director. Previous experience with ELLE, and ELLE Decoration.
Westwing ownership structure

30.50%

Rocket
49.50%

Kinnevik

Other investors
20%

Source: Kinnevik, Rocket Internet

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.

Source: Kinnevik Capital Markets Day, September 2014

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

Source: Alexa, SimilarWeb, Facebook

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

Source: Company data, Deerwood estimates


*Active customers in millions, Revenue/Customer in $

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

Qliro financial projection


(SEK mm, except per customer)
Active Customers (millions)
% growth
Revenue/Active Customer
% growth
Revenue
% growth

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%

Operating profit/loss (EBIT)


EBIT Margin

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%

2017 EV/Sales Multiple


Exchange Rate (EUR-USD)
2017 Qliro EV ($ mm)
+ net cash
2017 Qliro Valuation ($ mm)

0.5x
8.24
$363
$65
$428

KINV % interest
2017 KINV interest value ($ mm)

28.5%
$122

Source: Qliro data, Deerwood estimates

Management and Ownership Structure


Paul Fischbein, CEO, joined Qliro Group in 2011 when Tretti AB, the company that he founded and
served as CEO of since 2004, was acquired by the group. Nicolas Adlercreutz, CFO, previously served as
CFO at PA Resources AB, a public company in Stockholm, Sweden. Three Kinnevik management team
members currently serve on the board of directors.
Qliro ownership structure

Kinnevik

28.5%

Swedbank Robur Funds


Oppenheimer Funds

47.8%

InvescoFunds
7.9%

HendersonFunds

Other shareholders
5.6%
5.0% 5.2%
Source: Qliro Group data

55

Timeline
1999

Online record-store CDON.com was launched.

2007

Acquired Nelly.com and Linuslotta.com, both online fashion stores.

2008

Acquired Gymgrossisten.com and its Finnish equivalent, Fitnesstukku.fi.

2008

Bodystore.com was included in the acquisition of Gymgrossisten in 2008.

2010

CDON Group founded Heppo.com, an online shoe retailer.

2010

CDON Group was demerged from Modern Times Group and listed on Nasdaq OMX.

2011

Acquired brand furniture and interior decoration retailer RUM21.se.

2012

CDON Group acquired the logistics operations of Business Linc BL AB.

2013

Launched Milebreaker.com in the Sports & Health segment.

2013

Divested Heppo AB to Footway Group AB for SEK 43 million.

2014

Kinnevik invested SEK 241 mm to support the launch of the Qliro payment service solution.

2014

The payment solution Qliro was launched in Sweden Q4 2014.

2015

CDON Group changed its name to Qliro Group.

Source: Qliro data

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.

Source: Kinnevik Rocket Capital Markets Day, May 2014

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

Source: Kinnevik Rocket Capital Markets Day, May 2014

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

Source: Similarweb, 2015 February

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)

Active Customers (000s)


% growth
Revenue/customer ()
% growth
Revenue
% growth
EBITDA
EBITDA Margin
Cash (Deficit)
Valuation ($ mm)

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

2017 Revenue Multiple


Exchange Rate (EUR-USD)
2017 Lazada Valuation ($ mm)
KINV % interest
2017 KINV interest value ($ mm)

2.0x
1.15
$2,829
10.0%
$283

Source: Kinnevik, Rocket Internet, Deerwood estimates

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

Source: Company data, Deerwood estimates


*Estimated figures if official financials unavailable
*Active customers in millions, Revenue/Customer in $

Management and Ownership Structure


Maximilian Bittner, CEO. Joined Lazada in 2012 after experience at McKinsey & Company, Morgan
Stanley, and an MBA at Kellogg Business School.
Pierre Poignant, COO. Previous experience with McKinsey & Company.
Lazada ownership structure

7%
10%

4%

Rocket Internet
27%

Others
Tesco Overseas

Kinnevik
25%

Access Industries

27%

Summit Partners

Source: Rocket Internet, Kinnevik data, news articles

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.

Source: Kinnevik Rocket Capital Markets Day, May 2014

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

Linio website visits vs. B2C competitors, 2014 March

Source: Kinnevik Rocket Capital Markets Day, May 2014

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

Source: Similarweb, 2015 February

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)

Active Customers (000s)


% growth
Revenue/customer ()
% growth
Revenue
% growth
EBITDA
EBITDA Margin
Cash (Deficit)
Valuation ($ mm)

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

2017 Revenue Multiple


Exchange Rate (EUR-USD)
2017 Linio Valuation ($ mm)
KINV % interest
KINV % interest post-dilution
2017 KINV interest value ($ mm)

2.0x
1.15
$809
9.4%
6.7%
$55

Source: Kinnevik, Rocket Internet data, Deerwood estimates

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%

Source: Rocket Internet, Kinnevik data, news articles

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

Expanded operations to Chile, Panama and Ecuador.

Source: Kinnevik, Rocket Internet data

65

Jumia and Konga


Overview
In this section, we combine our analyses of Jumia and Konga because they are virtually identical
companies competing to build the leading B2C online retailer and marketplace in Nigeria and greater
Africa.
Jumia, founded in 2012, is backed by the Rocket Internet sphere of investors, including Kinnevik. In 2014
we forecast Jumia to grow revenues 100% year-over-year to EUR 58 million and produce EBITDA loss of
EUR -62 million, at an EBITDA margin of -106%. Based on the latest funding round in November 2014,
Jumia is valued at USD $543 million, at a sales multiple of 7.2x.

Source: Kinnevik Rocket Capital Markets Day, May 2014

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

Source: Konga.com website, 2014 March

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

Similarweb country rank


Nigeria
Ivory Coast
Kenya
Egypt
Uganda
Morocco
Cameroon
Tanzania
Ghana

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

Source: Similarweb, 2015 February

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

Jumia financial projection


(EUR mm, except per customer)

Active Customers (000s)


% growth
Revenue/customer ()
% growth
Revenue
% growth
EBITDA
EBITDA Margin
Cash (Deficit)
Valuation ($ mm)

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

2017 Revenue Multiple


Exchange Rate (EUR-USD)
2017 Jumia Valuation ($ mm)
KINV % interest
KINV % interest post-dilution
2017 KINV interest value ($ mm)

2.0x
1.15
$776
9.7%
8.5%
$66

Source: Kinnevik, Rocket Internet data, Deerwood estimates

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

Konga financial projection

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

Source: Kinnevik, Rocket Internet, Deerwood estimates

2017 Revenue Multiple

2.0x

2017 Konga Valuation ($ mm)


KINV % interest
KINV % interest post-dilution
2017 KINV interest value ($ mm)

$349
41.0%
29.5%
$103

Source: Forbes news article, @ShopKonga twitter, Deerwood estimates

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

Source: Company filings, Deerwood estimates


*Estimated figures if official financials unavailable
Active customers in millions, Revenue/Customer in $

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

Source: Kinnevik, Rocket Internet data

Konga Management and Ownership Structure


The CEO and founder of Konga is Sim Shagaya, Nigerian-born serial entrepreneur with experience
founding and running tech companies in Africa. Prior to Konga, he founded Nigerian flash-sales site
DealDey (also backed by Kinnevik), and an African outdoor advertising company, E-motion. Before
becoming an entrepreneur, Mr. Shagaya was head of Google Africa, worked at Rand Merchant
investment bank, and received an MBA at Harvard Business School.
Shola Adeko, CFO. Previous experience with Etisalat Nigeria.
Olatokunbo Fagbamigbe, CIO, formerly with Google.

71

Konga ownership structure

26%
41%

Kinnevik
Naspers

Others
33%

Source: Kinnevik data

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.

Source: Vostok Nafta Presentation, September 2014

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

Source: Vostok Nafta Presentation, September 2014

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.

Source: Vostok Nafta Presentation, 2014 September

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)

Unqiue Monthly Visitors (millions)


% growth
Revenue/UMV (RUB)
% growth
Revenue
% growth

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

2017 EV/EBITDA Multiple


Implied EV/Sales Multiple
Exchange Rate (USD/RUB)
2017 Avito EV ($ mm)
+ net cash
2017 Avito Equity Value ($ mm)

18.0x
12.6x
67.00
$2,823
$467
$3,290

KINV % interest
2017 KINV interest value ($ mm)

31%
$1,033

Source: Kinnevik, Vostok Nafta data, Deerwood estimates

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.

Source: Vostok Nafta Presentation, 2014 September

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

Online classifieds comparison


Enterprise
LTM
Value
Revenue
($ mm)
58.com
2,750
230
Bitauto
2,270
313
Autohome
3,730
283
Schibsted Established Classifieds
4,775
476
Finn.no
190
Blocket/Bytbil.se
115
Leboncoin.fr
171
RightMove
4,476
256
Trade Me Group
1,147
141
Craigslist
n/a
81
Quikr
343
50
Saltside Technologies
113
n/a
Average
Avito

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

Source: Bloomberg, Morningstar, Yahoo, Company Filings, Deerwood Estimates


*Unique monthly visitors (UMV) in millions, Revenue/UMV in $

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%

Jonas Nordlander and cofounder Filip Engelbert


14%

19%

Northzone Ventures,
Baring Vostok, Accel
Partners and Others

Source: Kinnevik, Naspers, Vostok Nafta data, news articles

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

Source: Kinnevik, Naspers data, news articles

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

Quikr financial projection


(INR mm, except per customer)

Unqiue Monthly Visitors (millions)


% growth
Revenue/UMV (INR)
% growth
Revenue (INR mm)
% growth
EBITDA
EBITDA Margin
Valuation ($ mm)

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

2017 Revenue Multiple


Implied EBITDA Multiple
Exchange Rate (USD-INR)

8.0x
20.0x
61.75

2017 Quikr Valuation ($ mm)


KINV Ownership %
2017 KINV interest value ($ mm)

$1,461
16%
$234

Source: Kinnevik data, Deerwood estimates

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

Source: Bloomberg, Morningstar, Yahoo, Company Filings, Deerwood estimates


*Unique Monthly Visitors (UMV) in millions, Revenue/UMV in $

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

Source: Kinnevik data, news articles

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.

Source: Bikroy.com website, 2014 March

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

Online classifieds traffic comparison


Year Launched
Monthly Page Views (mm)
Facebook Likes (000s)
Alexa Traffic Rank
SimilarWeb Traffic Rank

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%

Source: Kinnevik data, Deerwood estimates


*Jan 2015 valuation estimate derived from $40 million financing round with Hillhouse Capital & Brummer & Partners

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

Source: Kinnevik press release, Deerwood estimates

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.

Source: Wimdu website, 2015 February

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

Number of Listings Enterprise


Value
(000s)
1,000
10,000
1,043
2,300
300
170

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)

Number of room-nights (mm)


% growth
Number of customer nights
% growth
Revenue/Customer Night ()
% growth
Revenue ( mm)
% growth
Valuation ($ 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%

2017 Revenue Multiple


Exchange Rate (EUR-USD)
2017 Wimdu Valuation ($ mm)
KINV % interest
2017 KINV interest value ($ mm)

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

Source: Rocket Internet IPO prospectus, Kinnevik data, Deerwood estimates

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

Wimdu ownership structure

34%

47%

Rocket Internet
Kinnevik

Others
19%

Source: Rocket Internet, Kinnevik data

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

Source: Millicom Capital Markets Day, September 2014

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).

Source: Millicom Capital Markets Day, September 2014

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

Millicom financial projection


($ mm, mm subscribers)

Central America subscribers


South America subscribers
Africa subscribers
Total mobile subscribers
% growth
Blended ARPU ($)
% growth
Mobile revenue
Cable revenue
Other + MFS Revenue
Total Revenue
% growth
Total operating expenses
Operating profit
as % of revenue
D&A expense
EBITDA
EBITDA Margin

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%

2017 EV/EBITDA Multiple


2017 Millicom EV ($ mm)
- net debt
- non-controlling interests
2017 Millicom Equity Valuation
KINV % interest
2017 KINV interest value ($ mm)

6.5x
$19,575
($3,900)
($4,439)
$11,236
37.9%
$4,253

Source: Millicom data, Deerwood estimates


*Non-controlling interests comprised of $2.5 bn for 45% of Guatemala and 33% of Honduras, and $1.9 bn for 50% of UNE

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

Latin America and Africa mobile operators comparison


($ in mm, except ratios)
America Movil
Telefonica
Bharti Airtel
MTN
Zain
Vodacom

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

MICC UNE + Other Cable


1,655
425
26%
2.6
Source: Company data, Deerwood estimates
*Estimated figures if official financials unavailable
*Households in millions, EV/Household in $
*UNE + Other Cable 2014 revenue and EBITDA is pro-forma assuming acquisition of UNE on 1/1/14
*Cablevision S.A. market cap includes adjustment for non-controlling interest
*Net Servios de Comunicao market cap estimated to be 40% higher than last traded price in 2012 prior to acquisition by AMX

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

Source: Nasdaq OMX, September 2014

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

Mobile Financial Services (MFS) launched.

2012

Hans-Holger Albrecht was appointed CEO, replacing Mikael Grahne.

2012

Acquired Cablevision in Paraguay for $172 million ($694 per RGU).


92

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

UNE transaction in Colombia completed in August.

2015

Mauricio Ramos appointed CEO as of April 1, 2015.

Source: Kinnevik data, news articles

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.

Source: Tele2 Annual Report, 2013

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

Tele2 Subs (mm)


4.0
1.3
3.3
0.8
1.8
1.0
0.5
0.3
0.7

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%

2017 EV/EBITDA Multiple


2017 Tele2 EV ($ mm)
- net debt
2017 Tele2 Equity Value

6.5x
$4,948
($994)
$3,954

KINV % interest
2017 KINV interest value ($ mm)

30.2%
$1,194

Source: Tele2 data, Deerwood estimates


*Historical and forecast financials are pro forma for sale of Russia and Norway segments
*Blended ARPU in SEK

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

European telecom comparison


($ mm)
TeliaSonera
Telefonica
Telenor
Average
Tele2

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

Source: Company data, Deerwood estimates


*Estimated figures if official financials unavailable
*Subscribers in millions, EV/Sub in $
*TeliaSonera market cap adjusted downward for 38% stake in Turkcell worth $4 bn and 25.2% stake in Megafon worth $2.5 bn
*Telenor market cap adjusted downward for 33% stake in Vimpelcom worth $3 bn
*Tele2 market cap is adjusted downward for the planned special dividend from proceeds of Norway operations
*Tele2 2014 revenue and EBITDA are pro forma for sale of Norway operations
*Subscribers include wireless, fixed line, and pay-TV subscribers

Management and Ownership Structure


Mats Granyrd, CEO, joined Tele2 in 2010. Previous experience with Ericsson and Andersen Consulting.
Owns 57,725 B shares and 180,000 stock rights, worth USD $2.5 million.
Allison Kirkby, CFO, joined Tele 2 in 2014. Previous experience with Virgin Media, Procter & Gamble, and
Shine Corporation.
Tele2 ownership structure

Kinnevik

30.2%

Nordea Alfa

Andra AP-Fonden
63.8%
4.0%

Others

2.0%

Source: Cision/Euroclear (Tele2 Website)

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

Modern Times Group

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.

Source: Modern Times Group Capital Markets Day, 2014

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

Free-TV Scandinavia commercial share of viewing, 2013-2014

Source: MTG 2014 4Q Earnings Release

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

Source: MTG 2014 4Q Earnings Release

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

Free-TV emerging markets commercial share of viewing, 2013-2014

Source: MTG 2014 4Q Earnings Release

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

Source: MTG 2014 4Q Earnings Release

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 EBITDA Multiple


Exchange Rate (USD-SEK)
2017 MTG EV ($ mm)
- net debt
2017 MTG Valuation ($ mm)

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

Source: Company data, Deerwood estimates


*EBITDA includes share of earnings in associated companies and JVs
*Forecast assumes no change in interests in CTC Media or other Russian assets

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

Source: Bloomberg, Morningstar, Yahoo, Company data, Deerwood estimates

Management and Ownership Structure


Jorgen Madsen Lindemann, CEO. Appointed CEO of MTG in 2012, replacing Hans-Holger Albrecht.
Employed by MTG since 1994. Serves on the board of CTC Media as Co-Chairman.
Mathias Hermansson, CFO. Appointed CFO in 2006, replacing Mia Brunell Livfors. Joined MTG in 1999,
previously was MTG Group Financial Controller from 2001-2006. Serves on the board of CTC Media.

100

MTG ownership structure

Kinnevik
20%
Nordea Funds
6%
4%

70%

Swedbank Robur
Funds
Others

Source: SIS Agarservice

Timeline
1987 TV3 began broadcasting as Scandinavias first commercial TV channel.
1991

Viasat satellite Pay-TV business launched.

1995

MTG was formed as a subgroup within Kinnevik.

1997

Shares in MTG distributed to Kinnevik shareholders and listed publicly.

2000

Metro spun-off and publicly listed.

2001

MTG acquired 75% of Darial TV, a Television channel in Russia.

2002

Acquisition of 37% in StoryFirst Communications, owner of CTC Media.

2008

Sold DTV in Russia to CTC Media and acquired Nova in Bulgaria with proceeds.

2010

CDON/Qliro spun-off and publicly listed.

2014

Acquired 75% of Trace Partners.

2015

Sold Hungarian Free-TV channels Sony

Source: MTG data, news articles

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.

Source: Kinnevik Capital Markets Day, September 2014

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)

Non-SA Loan Portfolio


% growth
South Africa Loan Portfolio
Total Loan Portfolio
% growth
Shareholders' Equity
Equity to Loans
Net income
ROE
Valuation ($ mm)

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

2017 P/B ratio


2017 implied P/E ratio
2017 Bayport Valuation ($ mm)
KINV % interest
2017 KINV interest value ($ mm)

1.7x
8.5x
$725
30.7%
$223

Source: Kinnevik and Bayport data, Deerwood estimates


*2013 ROE and net income is a pro forma estimation assuming Bayport South Africa was acquired on 3/31/13

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

Bayport vs. Gentera financial metrics comparison


2014 1H 2014 T9M
Bayport
Gentera
26.2%
60.4%
12.8%
7.8%
17.2%
53.0%

2014 Financial Ratio Comparison


Yield on gross loans
Interest expense as % debt
Net interest margin
Provision for credit losses as % of net loans
Charge-offs as % of net loans
Allowance for loan losses as % of gross loans

10.7%
4.6%
16.0%

6.9%
6.9%
3.3%

Efficiency ratio

83.3%

64.1%

Source: Bayport, Gentera data


*1H and T9M metrics are annualized for comparison purposes

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

Source: Bayport, Kinnevik data

104

Timeline
2002 Bayport founded by Stuart Stone and Grant Kurland as a British Virgin Islands company.
2005

Changed corporate domicile to Mauritius.

2011

Converted to a public company, and listed on Stock Exchange of Mauritius in 2013.

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

Source: Kinnevik, Bayport data

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.

Source: Kinnevik Capital Markets Day, September 2014

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

Source: Kinnevik Capital Markets Day, September 2014

Source: Kinnevik Capital Markets Day, September 2014

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

Source: Kinnevik data, Deerwood estimates


*Assumes valuation grows 1:1 with growth in total subscriber base
*Estimated

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

Bima ownership structure

17%

Leapfrog
Investments
44%

39%

Kinnevik
Digicel

Source: Kinnevik, Bima data, Deerwood estimates

Timeline
2010 Bima founded. First products sold via partnership with Tigo Ghana.
2014

Launched operations in Paraguay and Honduras in October.

2014

Raised USD $5 million financing from Digicel at a $64 million valuation in December.

Source: Kinnevik, Bima data

109

Miscellaneous company analyses


In this section we list the non-core, smaller companies that make up the remainder of Kinneviks net
asset value. For all of these companies except Metro, we kept the fair value estimates in 2017
unchanged from the valuation marks as of 2014 4Q. For Metro, we wrote down its value to zero in 2017,
as it is likely to continue producing losses for the foreseeable future.
For the publicly traded companies of Transcom and Black Earth Farming, we also present basic historical
financial information.
Home and Living - Other
Valued at SEK 93 million, Kinnevik has not yet disclosed what other investments are included in the
Home and Living category outside of the stakes in Home24 and Westwing.
For the 2017 NAV estimate, we did not change the value of this category from 2014 4Q.
Other E-commerce Other
Excluding Kinneviks 10% stake in Jumia worth SEK 409 million, the Other category within Other ecommerce was valued at SEK 257 million. We believe this includes a stake in Fab Furnish and other
undisclosed investments.
For the 2017 NAV estimate, we did not change the value of this category from 2014 4Q.
Marketplaces - Other
Valued at SEK 115 million, we believe the other marketplace investments consist of an estimated 33%
stake in Yell.ru, and interests in Dealdey, Foodpanda, and PricePanda.
For the 2017 NAV estimate, we did not change the value of this category from 2014 4Q.
Financial Services & Other - Other
This category was valued at SEK 328 million. We believe the publicly traded stake in Seamless valued at
SEK 48 million is included in this category, as well as a SEK 7 million investment in Belcash and other
undisclosed investments.
For the 2017 NAV estimate, we did not change the value of this category from 2014 4Q.
Entertainment - Other
We believe Kinneviks stake in IROKOTV is included in the Entertainment Other category which was
valued at SEK 106 million.
For the 2017 NAV estimate, we did not change the value of this category from 2014 4Q.
Transcom
Transcom Worldwide provides customer care, sales, technical support, and credit management
outsourcing services globally. It is publicly listed on the Nasdaq OMX Stockholm exchange under symbol
TWW, with a market capitalization of USD $224 million. Kinnevik owns 33% of capital and 39.7% of total
voting power.

110

Transcom historical financials, 2009-2014


(EUR mm)
2009
Revenue
560
% YOY Growth
Operating margin
4.3%
Adjusted EBIT
Net income/loss
20.6
CFO
17.7

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

Source: Transcom data

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)

Source: Kinnevik Annual Reports


*2014 Adjusted EBIT excludes SEK -330 million impairment of goodwill

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

Full Legal 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.
Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and
the potential for complete loss of principal. This reports fundamental value estimate only represents a best efforts
estimate of the potential fundamental valuation of a security, and is not express as, or implied as, assessments of
the quality of a security, a summary of past performance, or an actionable investment strategy for an investor.
This report does not in any way constitute an offer or solicitation of an offer to buy or sell any security, investment,
asset, or commodity discussed herein or of any affiliates of Deerwood. Also, this document does not in any way
constitute an offer or solicitation of an offer to buy or sell any security in any jurisdiction in which such an offer
would be unlawful under the securities laws of such jurisdiction. Deerwood reserves the rights for its affiliates,
officers, and employees to hold cash or derivative positions in any company discussed in this report at any time. As
of the original publication date of this document, readers should assume that Deerwood is long shares of KINV and
has positions in financial derivatives that reference that security and stand to potentially realize gains in the event
that the market valuation of the companys common equity is higher than prior to the original publication date.
These affiliates, officers, and individuals shall have no obligation to inform any investor about their historical,
current, and future trading activities. In additional, Deerwood may benefit from any change in the valuation of any
other companies, securities, assets, or commodities discussed in this report.
The information contained in this report may include, or incorporate by reference, forward-looking statements,
which would include any statements that are not statements of historical fact. Any or all of Deerwoods forwardlooking assumptions, expectations, projections, intentions or beliefs about future events may turn out to be wrong.
These forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks,
uncertainties and other factors, most of which are beyond Deerwoods control. Investors should conduct
independent due diligence, with assistance from professional financial, legal and tax experts, on all securities,
companies, and commodities discussed in this document and develop a stand-alone judgment of the relevant
markets prior to making any investment decision.

113

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