Rocket Internet SE (OTC:RCKZF) Q2 2019 Earnings Conference Call September 19, 2019 4:00 AM ET

Corporate Participants

Bettina Curtze – SVP Finance & Investment

Oliver Samwer – CEO

Alexander Schlomberg – Managing Director and Co-Founder at ExpertLead

Conference Call Participants

Nikolas Mauder – Kepler Cheuvreux

Sarah Simon – Berenberg

Marcus Diebel – JPMorgan

John King – Bank of America

Oliver Samwer

Okay. Thank you very much for joining us this morning in London to our capital markets day and an update on the company and its strategy. So it takes us to look at the current state of selected companies. As you know Jumia is still a big investment of ours. It’s a company that we founded many years ago; it’s now public with in New York.

I think, [indiscernible] second the company, we own still about 17% of the company. We own about 11% of Home & Living and GFG that listed in Frankfurt is still own 18%. So, those are kind of like our remaining larger public holdings.

If you look at how do they develop? I think Jumia, you clearly see with a very, very strong growth. Africa will continue to be a market where people do come online. We have a lot of e-commerce to the actions. And I think what you should not underestimate Jumia is extremely strong also in payment. They have such a strong position and if you look what Alibaba did with Alipay and look what eBay did PayPal. Once you have a very strong e-commerce platform, it’s very easy to push your payment solution.

And Jumia pay is making great progress and the company’s rolling out, if you follow their announcements to more and more countries and we feel very confident about the dominance of this company. I think that the market share of this company is extremely high. And I think they’re going to be just like other companies like Flipkart in India or Amazon in the rest of the world or Alibaba. I think those models; we need horizontal platform on which you can build more and more services over time. And I think that’s clearly a number one in Africa.

If you look at Global Fashion. I think you could see also very strong domain, very strong business in Asia Pacific, Australia with iconic in the [indiscernible] very strong business in Latam, [indiscernible] and very strong business in Russia. So, I think, again, I think what we feel very good about is the dominance of this business. I think the share price is very low, but I think basically if you look at it the trading volume is extremely small. So, I don’t think that is necessarily representative of the performance of the company. I think the company itself had a 16% constant FX, in the same time improving significantly its negative EBITDA margin. And I encourage you to have a talk with Patrick, one of the CEOs who before run also Asia Pacific. I think you can also see the depth and the quality of the management when you talk to Patrick or Christoph.

So, I think we feel very good there. Home & Living, I think it’s all known about kind of the challenges the business went through. I think it’s now on the recovery path. If one reads kind of what they were told to say in the public market, I think we feel good that the company will recover. It still might be in total, still maybe six to 12 months to get to its original strength. But, also there we feel companies making good progress. So, I think Jumia and GFG clearly on strong growth trajectory and strong progress. And I think Home 24 after the recovery [Audio Gap] we are also making progress.

If you look at kind of like EBITDA margin, I think you see Global Fashion at only minus five. I think Jumia is different game because basically this is really about capturing the whole market and Home 24, I think if you look at the announcements, I think there is a positive trend despite what you see here. I think it’s more future oriented.

Especially GFG, I think we should not always only look at revenue or GMV. I encourage you to look strongly in GFG, but also in Jumia for order because orders, if you focus has the company more relevant, how relevant can I be for customer — for our customer, it really matters more of the audit. And I think that many people underestimate because basically to be more relevant to the customer, you need to also give him access to lower priced items. And therefore, it’s much more important that kind of the customer or out of all fashion orders whatever gives 20% of the fashion orders to you.

And therefore, you also need to give them access to t-shirts or short pants or something that might have a lower average order value than your traditional goods. But the relevance is extremely good and I think that is also, when you later look at Jumia, I think in general number audit is extremely important because it’s just as dominance in market share. It’s about the relevance for the end customer.

And you see that same thing when you look at Amazon, you know, today they deliver you even a few pence of something, things that are basically whatever $10, $5, $15 items or something is missing for your computer or something because they wanted to be relevant. They want when you think of buying. They want you to think of Amazon. The same as when you think of buying something, Jumia wants to think, whenever you think of Jumia and GFG wants to have you think of GFG. So, I think a very, very important metric.

Jumia, you see it here, like a testament, I think there isn’t a print here, the orders, but I think the company makes its own announcement. I think also in Jumia, yes, originally there was also some third-party business. You see the strong growth in the marketplace revenues. I think the company has extremely, when you look at their last presentation has a very diverse set of revenue streams from marketplace rather than use to advertising revenues something that you see kind of Amazon driving also lot to logistics revenues to, fulfillment revenues. So, I think the company has really a very diverse set, when you see the strong growth of almost 100% in the marketplace revenue and the GMV.

Home 24, as we talked about it that I think the company is on a recovery mode. You see that also with growing — with an 18% revenue growth, 21% in numbers, hence about most people don’t know it has a very strong Latin American business also and that is growing 38% at constant currency. The business primarily in Brazil and extremely strong there.

So, I think as we discussed in — probably our last analyst call, I think the reality is and I think is that the pipeline of young companies is growing, but kind of in the middle. I think of companies that basically are over the medium size is rather small. So, we do not expect to lift very soon a company to the selected companies because basically we have selected companies that went now public. But most other promising companies are small still in size and therefore there will be kind of a people ask us about what’s your next public company, what’s your next thing, I think people need to be patient. We do not expect in 2019 or ’20 to list a company out of — our young companies because they need time to develop and you really need to hear Alex, ExpertLead, the leading freelancer community and I think he would share with you. Those are all one of the models making extremely progress, but those are not 2019 or 2020 candidates or public listing or for big M&A transaction or anything of that kind which can crystallize clearly the value for our shareholders.

You see, however, the overall activity is very big. We launched large number of models in 2018, but all of those companies like in the past no different to the past take a long time. We do have complementary investments in private companies. And we for transparency reason, we give you an overview here. At the same time, I would say the values you should always take with a lot of caution because they are really subject to significant limitation, which should not be read as an indication of the price that third parties would be willing to pay in future financing loan, the potential trade sale or potential initial public offering. Because you see with Uber or with an Reebok and on the other side with [indiscernible] that sometimes private relations and public relations are just very difficult to forecast. Yes. On the one side with Uber and Reebok, you have valuations below the last private more or less [indiscernible] zoom. For example, you had valuations that the significant and public markets could be higher than the private market.

And, therefore, I think in today’s environment, it’s very difficult to clearly put the value of a private company. And therefore, I think we look much more at the operational progress at revenue number of orders GMV, SaaS revenues or whatever can less those values. And I think, we can’t tell you, if the total cost is closer to the value of them or the right-hand side because I think in the end those companies are still young, you have to prove their market, you have to prove their dominance and we just will always quarterly update you there. And the most has to do with loss funding loans and fair value valuation. But I think this is the set of opportunities, but I think the total value of that, it’s difficult to determine.

If you look at the consulted IFRS, I think we all know that the representation is very limited. I think where do the profits come from, obviously, from the sale of shares especially [indiscernible] others. So, our expectation is not that you’re going to see the same in the next six or twelve months because many of the assets that we had crystallized and therefore it’s not that we have a constant flow of capital gains, no constant flow of other operational strong income.

I think we have many smaller boats and we do have the capital to support them to operationally support them, to fund them to help them on the IT and also invest in them. And our position currently is that we have €3 billion in net cash roughly 300 million to 400 million public stock. Yes, recently shares have gone down. I mean you can — we showed your our main shareholdings and this is our numbers as of August 31.

Yes, it can be 300 million, it can be 200 million, it can be 500 million, but public stock, I think is very transparent because we show you what we own. And then, we have in our [indiscernible] lending business another 200 million roughly.

So, you look at roughly maybe 3.5 billion, 3.4 billion, 3.6 billion of liquid — relatively liquid cash. And I think going forward like in the past some of that money will go into our existing businesses. Some of that will be into new business that we found, some of that will be into new businesses where we can take potentially like deliver euros and like that, a significant position. Some of that potentially can also go into public companies. I think we will watch the market. And I think the strength of the team is very strong. We have a number of offices, I think we see more opportunities, but we find ourselves at the point where generally asset prices are not cheap.

I think the likelihood that it gets better from here is maybe [Technical Difficulty] everyone is very subjective and nobody knows, but probably maybe the expectation like the likelihood that gets better from here, which is already very good times probably lower than the likelihood that gives the less good compared to day. But, you know, with all that quantitative easing and so on, you probably know more about it than we. I would say one doesn’t know, so let’s make sure we have always enough capital and I think it’s less actually about the market for us. It’s more about finding the right thing.

I think it could be — look at many opportunities and just did not do them because of price, probably not. I think most had to do with — we just [indiscernible] the level of conviction to put a lot of our capital yet or the need because many of the young companies are still young and don’t need that capital. So what is and we always very transparent with our investors is that this I think last year compared it like a drug pipeline. We do not have those drugs that are kind of very close to becoming the next blockbuster because it’s kind of like you have lots of young companies that still need to be tested in the marketplace, that still take many years to develop.

And we are exceeding the ground by building more companies for the future. But there’s no [indiscernible] show what about company with hundreds of millions of sales and so on. That’s why you are going to lift one to the select companies for quite a long time.

So, our strategy has not changed at all. It is the same strategy. The big companies, so we’re very focused on companies from scratch building companies putting teams together, putting ideas together, putting working with them operationally to make them better in our core markets. I think our core markets are Europe, Southeast Asia, Latin America, Africa or Australia, little less U.S. and very, very little China. And in our network, we basically also make complementary investments and we support the company, so and so, do that.

I think what is clearly changed in the five years, they now, basically five years more or less public. I think what has changed is diversity. So, very risky, there probably a very consumer tech 90%, consumer tech business in 2014.

In five years, we changed a lot and we have now many B2B businesses. You see basically number of sector B2B is a bigger consumer tech [indiscernible] today. I think our team, this is skilled in soft.

[indiscernible] we have invested in a great company called [indiscernible] in Munich which is a software business, very fast growing, very strong dominant. In fintech, we are [indiscernible] we were in funding circle, we are in [indiscernible]. So, kind of we have a very strong, horizontal knowledge base to-date, so that would also makes us confident for the future. I think in the last two years, I see we invested a lot in building the foundation for 2025 basically where we really have good companies across many, many sectors. Property tech is obviously another strong base of our food tech, travel tech, but I would say especially B2B fintech they continue to grow. And I think we have the team to do that.

So, I think we don’t create stories meaning we don’t feel that in a transparent communication, one should just kind of like put a big vision on something. I think our situation is very clear. We have a significant cash position. We have many, roughly, whatever like 100-plus young companies — when I mean young, means companies that are primarily probably between 3 and 5 years away from crystallization of value, have may sometimes even longer. But I think on average probably more like to the 4, 5 years on average and that makes us feel content for the long-term future.

In the mid-term future, basically actually a few things that can change, but primarily — we will not have a lot of surprises there. And I think the rest will all be very opportunistically if the markets change, or if a great company comes across us, we will make the necessary decisions, investments, but I would say it’s a continuous development and not surprises to come.

I think that’s why we didn’t put you up another 50 slides or something because I think the — the situation is very clear and I think we delivered in the past. That’s why we’re also confident about the future. And if we make any large investment, or if we make any or if you see any company completely outperforming and crystallizing value or something, we will report that to the market anyway. Otherwise, I think it’s for the next three years for sure kind of very continuous progress of our company.

So, I think before we go, will have [indiscernible] present ExpertLead. I think we have today more time to go in questions that you want to get answers and things we can help you better understand our company. So I think we open up for any questions. I think we have to use the mic, so the people in the phone can also use it. I think the colleague have a mic over here. Any questions?

Question-and-Answer Session

Q – Andrew Ross

Thanks. It’s Andrew’s from Barclays. Maybe just two to get started. I guess first one as you sold quite a few [indiscernible] this year, so maybe just a comment as to why is a kind of company specific view on valuations, kind of anything on that? My second question you’re clearly having a lot of cash there’s been a couple of press articles about the possibility of taking the company private, so we’d be interested in hearing your views around what about you’d be interested in doing or not? Thanks.

Oliver Samwer

Yes. I think fundamentally, we are not like — we are not a core public investor. Yes, I think in the end, we are in the business of building companies and influencing the companies strongly and they’ve been kind of our influence goes strongly down afterwards. I think then basically it becomes ultimately just a public holding. And I think that is really independent of the performance of the company. It’s just not core. I think fundamental core strategy.

If it got the question about the private, I think we never took a decision to take the company private. Yes, obviously, in kind of whatever that 55,000 different capital markets, with an extra one, we can do every day. I think at this point of time, it’s not the strategy of the company, can’t we take the company private and we don’t comment — having with on all those rumors and so on. I think the rumors all the time and we never comment on them currently at this point of time. There is no decision to take the company private.

Nikolas Mauder

Thank you. It’s Nikolas from Kepler Cheuvreux. Two questions, the first one on your decision regarding where to invest, in which vehicle because we know that you closed two sort of massive funds and at the same time there’s limited investment at the level of the holding. When you close those funds or market them to the investors, what do you tell them in terms of how many investments you can undertake, while at the same time you tell the capital markets that you do like 89 million in the first half year of 2019. That’s the first question.

The second one on the debt growth capital, think about the small change in the number from [0.3 billion to 2.2 billion] [ph]. If that, was that a repayment or did you have to write off something that what’s happening there in the team, is it going along well? Thank you.

Oliver Samwer

I will start with the second. That is all fine. There wasn’t any white dove or something. I think that it just goes up and down depending on company [indiscernible] corporate debt. So, that is a good business in the current environment. One see sometimes less and sometimes more opportunity for the currently maybe little less. I think primarily just the quarter to use, if you can put the total bucket of potential cash together.

With regard to the fund, I think 2015 we announced that basically we do certain investments with the fund and we do have that what could shareholders, what could basically has a carry on that, so basically beyond the expertise that the company invests which is roughly 28% of every investment that it has a carry together with a carry that gets you to maybe 45% or 44% depending on carry structures of the total outcome, if you are above a certain hurdle rate.

Again, I think sometimes there are more rumors than reality, I think we recorded about one fund from 2016 and I think then we made one announcement about the next fund. And I think it’s very complementary to our core business and I don’t think it’s anything to change, but I think everything basically is very much reflected in the second and in the numbers where you have the private company in those numbers. So, I think that it’s reflected and basically takes everything account, obviously not to carry because it can only go carry when you actually meet the revenues and not when you may make in the future.

Any other question?

Sarah Simon

Sarah Simon from Berenberg. This number has a 200 plus, it does include the company you’re incubating at the Rocket laboratories just a third-party, I think that’s the first question.

And then, the second one was Traveloka, can you confirm they are doing another funding rather payment. And what kind of level of interest, do you have in that business?

Oliver Samwer

So, this one does not include the integrated companies because most of them need to be the companies we have a different, it’s not its fair value, but the equity. So, basically it can be a company that we incubated then we basically diluted so much that suddenly changed it to fair value. So, but to say on an average kind of as a general guidelines, this number does not include companies, so you still hold a significant stake can be incubated.

With Traveloka, it’s unfortunately MPEs the same. We cannot comment. I think it’s the company that is of a significant size that is leading in Southeast Asia in the traveling market. And that is won by wonderful founding team and whatever reports worked, it’s kind of we don’t comment on all those rumors.

But, we do have a board seat in the company. But, here is the company that is strongly and I think the best companies are that that is strongly managed by the founding team feels very — one of the other co-founders Henry, and they — I encourage if you want to learn about that company, you won’t learn a lot through us, so basically talk to your Asian colleagues and I think with all those reporting and so on, I would really wait until the company self report there something. If whenever the company reports, but not to follow too much what blocks and so.

Unidentified Analyst

[indiscernible]. I was wondering, if you could just comment on your thoughts on buyback. Clearly, you did quite a bit last year and the year before. But, I was just wondering what drove the decision, or whether you want to buy back shares or not?

Oliver Samwer

So, I think over time basically, I do think the company considers to buyback more share. I think a decision has not been made. If a decision will be made, there will be normal ad hoc concern. So, I think historically, we’ve been a situation that we bought back shares. I think, if you look at the different values, yes, I think it’s basically at certain levels, you basically have at the company side kind of doesn’t make sense now to buyback more because farther it makes more sense to invest in new young companies. I think historically probably the buyback wasn’t an easy answer. I think whatever 25 years of market cap of the company is around 3.8 billion. So, if you look at basically, if you look at to take the cash level and so on, basically that is whatever like 3.6 and as I say kind of it can fluctuate with the public markets to say, with current share price maybe it might be more 3.5, yes.

And then, basically, you have to form based on your view on — when the young companies and — in this slide here about the private. And then, basically, know you come to the conclusion that you know it’s not a must do decision to buyback share. So, I think my statement is, is the company likely to buy back shares over the next five years, yes. Does it have to happen this year or next year, I think it will all depend on market conditions where we will act in the interest of the shareholders, but I think it’s not a must do for the company. It’s not that it’s necessarily a huge valuation gap or something that is a must decision.

Marcus Diebel

Hi, Marcus Diebel, JPMorgan. Maybe following up on the question on cutting down your stakes, the current stakes to your GFG, Home 24 you mentioned, can you give any view on this whole strategic you see this, I appreciate you can’t tell us much in detail, but how do you look at them with a long-term core investment to you or do you think over the long run, we’ll see a potential reduction here as well.

And then, secondly, you must get a little bit of pressure from shareholders. On the question of whether selling down and impacting the liquidity of the stocks quite significantly because share prices to follow. Is that really in the interest of profit shareholder to sell, and keep the money short-term on the balance sheet? Given what you said, it doesn’t sound like there’s a lot of investment to come from, what is considered for now. So, how do you justify this strategy?

And then, lastly, in regards to Rocket and other players in the space, I’m Softbank clearly investing a lot in different companies these days. Do you feel that the only way to get assets to repay up and how can Rocket actually compare or compete against these kind of players in the current markets of the negative interest rates?

Oliver Samwer

So, we feel Jumia and GFG have still a lot of potential. Remember the end markets where the average penetration of e-commerce is so much lower than in Europe or U.S. or China. So, the markets in Africa obviously, relative terms extremely low penetration rates, but also GFG in Latam, Southeast Asia, Russia. I think it’s a lot more growth to come. So, I do expect that the company’s ownerships are going to be very high holds in the future.

So, I think it’s a very, very fast growth market there. We think adds to balance sheet and cash levels and competition. So, I think let’s be very clear, we cannot compete with the Softbank, yes. I think that is a different league. It’s a different business model. That is a different game. It’s the same as you would suddenly ask whatever, whom you are competing, to the Google or something. That’s a different set.

I think if you put things in perspective or something in Europe, itself I think to have €3 billion euros in net cash and to be able to create to support companies like historically [indiscernible] others. I think, you saw I think with a success of deliver yield with the success of the [indiscernible], with the success of [indiscernible], that holds to a few hundred million, your company can make a big difference. And if you look at the size of the fund, that maybe traditionally sees have in Europe, €3 billion net cash plus some part funds to third parties is a significant position.

And the honest answer I think is just a wide opportunity where management team is so convinced me to come along. And which [unspans] [ph] the answer, I don’t know when it comes along. It can come out of the existing incubate companies, it can come out of — in basic complementary investment, it can come with a new opportunity and that is also answer with the shareholders. And I think our long-term shareholders feel very confident and don’t want us to buyback all the time shares, or to do — cash to the shareholders or something. But, obviously there might be a group of shareholders that say the company has too much capital.

But, I would say look at the cash course of Apple and Microsoft, it’s on their course, who keep a lot of cash still to be ready, if they suddenly have to buy obviously in their sizes different leagues of companies. But, I think we don’t want to go back to the market, if you suddenly want to invest again 800 million in one business. And I think this independency of the moods of the capital market, the independent is not the big value. Can’t be valued highly that we don’t have to go to outside capital.

At the same time, it could happen, let’s say, I mean I don’t expect it, but five years is a long timeframe. If you look between here and 2025 maybe there will be one day an opportunity, so big that we even go back to the public market. But, I think in general we like the independent, we like the flexibility. We believe in a tech market that will go still for 20 years to come. So, there will be many opportunities and maybe one-day there will be the opportunity — will be even a situation where capital means something again.

Yes, I mean in today’s world, obviously, the value of capital has decreased. But, I think we are in a fast growing market and if something ever changed on macro then kind of the groups that have significant cash reserves might be able to take advantage. But, I agree and I clearly say that to our investors, it’s a mid to long-term strategy. So, it might be not the right like the perfect strategy for next few years. Yes, if the strategy builds more long five to 10 years and it’s now my 22 years in kind of building Internet companies. Yes, I have an intention to do another 20 years, so I think that’s the way we look at this company and that I think while fix the mix and long-term shareholders, but, that might not be perfect for the shareholders that have a two to three year window.

Nikolas Mauder

Thank you. Nikolas again. Following up on what we discussed. You said that often you don’t have the conviction to make a large investment. Can you maybe named top three reasons, why you don’t make investments like over the array of investment opportunities that you’ve seen over like the recent year. Yes, that would be interesting.

Oliver Samwer

I think one of the key reasons, the competitive set, so meaning kind of like the level of dominance that we think this company can achieve and that it can out compete the others. I think it’s often the reason why we don’t feel, I would say then ends with — it’s a can do investment, what amount of must do investment. And I think this is always a very difficult question, but I think we feel, if we deploy a lot of our capital, we need to be a much do investment.

And I think that’s what we felt with the [indiscernible] HelloFresh deliver you and others. And I think we have a couple of them where we feel very confident and we already put significant capital in the company called Awaytravel, as you saw in the history of Traveloka, those are companies where we put significant capital with it. To some extent, we couldn’t put more, but I think there is some companies have that high level conviction for us. I think we probably don’t see enough or we cannot put enough in the ones that you have that high conviction. One of those two, the competition I think is one.

What’s the second most frequent reason, I think the next is probably that somehow valuation doesn’t get us there that basically come to the company is a must do, but kind of like at this valuation, it feels like really betting that the market’s days like today. And so, we ask ourselves about that risk and insert a lot of other things, could be unit economics, could be not complete management team, many other things.

I would say number one is competition. I would think for the white company you are willing to pay up. I think people when we invested, 600 million HelloFresh to build out our shares. People look at it with that device and be to deliver, your people ask us, yes. So, I think we’re willing to pay up for the White Company. But, we need to have a very strong conviction that they have — it might have — huge market ahead of them that they have a very strong competitive situation. And to believe that they will own a lot of that market and it needs to be at a valuation where we basically have where we can still make a lot of money.

But I tell you, we’ve had that conviction and we had other co-investors or other people who did have a different conviction, so that they did ask. So, in the end, it’s still a very subjective. Yes, and we also have obviously, a lot of companies that have made the wrong decision where basically we were not brave enough or didn’t have the same level of conviction as others. And I think it plays in all ways and I think probably, we did not find enough conviction or the few that we have high conviction, we couldn’t put enough money. Any other question. Operator can please open up the line to see, if there are any questions on the phone?

Operator

Yes, sure. [Operator Instructions]

Oliver Samwer

I think —

Operator

Yes. We received two questions. One is from John King of Bank of America.

John King

Yes. Good morning. Thanks for taking the questions. Just a question on, I guess your focus you mentioned the successes of things like Slack relative to Uber, we were obviously trading below that last private round valuations. I mean one thing that obviously as those anecdotes say that software is in some ways outperforms on the Internet, names, and certainly, I think we’ve seen that in Europe more recently. And so, I guess, wonder whether that’s reflected in your portfolio and how you feel about it. You mentioned consumer Internet. Do you feel like going forward, we could see Rocket much more as a kind of start investor than a consumer Internet investor? And I guess do you have the right expertise to make that transition if so.

Oliver Samwer

I think it’s a good question. Yes, that is our goal. I wouldn’t say either off meaning not a consumer or B2B or software. I think we also wanted to be a leading software investor. Slack, Jumia a lot of other companies, I think that speaks for itself. I do think we have the team and the competence. And last but not least, therefore, many of them, the customers because many of our company’s, customers know for us to build their software company or to strategically invest in other, I think we can give them a lot of access to many of our companies and we have a deep understanding of, if their software performs, so if they have a good product market fit.

So I think that goal in the next 2025 is to be a very strong software investor. I’m always careful with this trend. Yes, I think it will be great consumer companies over the next five years. It would be great software companies, there would be great fintech companies. So, I think you saw in the presentation that would be very horizontally positioned today. And for some expert lead B2B company with many of the leading ducks companies, leading the large German listed companies being clients. It’s a very strong growth with a very big market. And it’s more of a B2B software community business than it is a consumer tech business.

So I think you want to be both and we would have no issue of putting 100 or 200 or 300 million in the software business or building software businesses and supporting them on their way. So, I think it’s valid.

John King

Thank you. And another question on your investment outlook, coming — you’ve been your — you had a strong track record in investing obviously in startups and young companies. But, would you consider going forward in investing in perhaps older technology businesses that essentially you think are underneath their fair value and that you could add value to towards. I mean is that only agenda now for you to differentiate branch out into more — maybe mature businesses.

Oliver Samwer

I think we do have a situation that the company never had before that we have a significant base of capital that with our knowledge of operational companies that allows us to support opportunistically invest in undervalued companies or mature companies on. I think that we always have a focus on growth, so I do think it’s very unlikely that the value trade or that we say this to this company. That’s a good bargain to make. I think in our DNA of this company is growth across many sectors. So, I think it’s more likely that we will pay up to a company bid in private or public that is delivering strong growth.

I think it’s less likely with really mature businesses. So, I think growth is still a very important obviously those can be 20% per year which can also be 50 to 100. I think over all we are not a technology value investor, that’s I think not our core DNA, and what we are good at.

John King

Great. Thank you.

Operator

Thank you, very much. [Indiscernible]

Unidentified Analyst

Yes. Thank you. Just a technical question on your outstanding shares because the difference between issued and outstanding according to your Web site is 1.7 million shares, but you have bought back in total 4.6 million shares in ’17 and ’18. Just wondering whether that number is updated and correct?

Oliver Samwer

I think it’s correct and I think it has to do with some of those shares have been cancelled and others have not been canceled yet that’s a German legal process that’s happening. I think you have to generally zoom everything what we bought back, will at some point of time be canceled, a big part is already, the rest will be done at some point of time.

Unidentified Analyst

Okay. So, if I take issued and subject 4.6 million shares from that that gives me the number — the right number should you cancel all bought back shares, is that correct?

Oliver Samwer

Yes. You should always kind of like kind of assume what we bought back, is canceled and I think this 1.7, let me point out, I think is the uncancelled number. So, basically you should subtract that.

Unidentified Analyst

Does the 1.7, obviously cancelled and the difference to the 4.6 is, is the difference which hasn’t been canceled yet I guess.

Oliver Samwer

I think my colleague Bettina will sort that in one second.

Unidentified Analyst

And do you include the bought back shares which have not been cancelled in your public stock?

Bettina Curtze

So, the right answer, so for the shares outstanding we have 150.7 million. You find it on the Web site and the issued share capital is 152.5 million.

Unidentified Analyst

Okay. But, the difference being…

Bettina Curtze

[Treasury] [ph] shares.

Unidentified Analyst

Okay. You bought back 4.6 million shares, it means there is another 3 million which you could cancel potentially?

Bettina Curtze

Now, some have been canceled. And what’s currently outstanding, so if you want to get to the market cap, you take the 150.7 times the share price.

Unidentified Analyst

Okay. The other three million shares, are they included in public stock or?

Bettina Curtze

I mean the others are treasury shares, right. So, the difference between the 152 and 150 million is treasury shares.

Unidentified Analyst

Okay. They are not included in your calculation of public stock?

Bettina Curtze

No.

Unidentified Analyst

And they could potentially be cancelled?

Oliver Samwer

Yes.

Unidentified Analyst

Okay. Thank you.

Oliver Samwer

I would always look at the 150.7 or something, yes, that is the number. If it’s cancelled or not it’s just a matter of time, it all be cancelled, if they’re held today in Treasury.

Unidentified Analyst

But, just to understand — to make sure, I don’t misunderstand. If you cancel the other shares, you will end up at 147.7 million shares, that’s what I think…

Oliver Samwer

I think we’ll end up at 150.7…

Bettina Curtze

I think, I’d call you back offline.

Unidentified Analyst

Okay.

Bettina Curtze

If you cancel all the treasury shares, we will still have 150.7 million shares outstanding.

Unidentified Analyst

So, there is — we have to check, okay. thanks.

Oliver Samwer

Okay. I think little ExpertLead to see kind of what kind especially with the B2B forecast. But the kind of young fast growing company as we do that is our future and it’s had a mid-term two or three years. It’s not the way you have to look at Rocket. We having a mid and long-term strategy based on our past success and based on our confidence that we have in the company. And we will update you whenever we feel that is strongly outperforming company, there is a huge opportunity, there is any change in strategy. But, I don’t think there is an expected change of strategy to come in the next five years. Obviously, if we look at the market, but I do think we have a strong position and as a team and the drive and hunger and at the same time we don’t always make mistakes not too many. So, mistakes we make every day, but not too many. Thank you very much.

Operator

Okay. Thank you, Darren. No further questions via the telephone line.

Alexander Schlomberg

All right. Good morning everyone. I’m Alex. I’m one of the co-founders of ExpertLead, before talking a bit more would ExpertLead, a short introduction. So, I have a background in management consulting before founding ExpertLead with my co-founder Anna and [indiscernible]. I worked for McKinsey and did a lot of digital and strategic transformation. And the common observation, during all of this project was pretty obvious one, which is nearly all companies regardless of how successful they were in or reduced risk of operating didn’t have the right experts to the right tech people.

So, basically all big corporate had great ideas on how to digitize, they had very sophisticated IT strategies, very complex IT roadmaps in theory, but they didn’t have the right amount of tech talent to actually implement this. And that’s where Expertly comes into the game. So, what we do with our tech-ridden community is, we provide the skills and the knowledge of our tech-ridden community to companies and we have companies to realize their digital agendas.

And the special thing about us is that we do not have any kind of [indiscernible] in our community. We really focus on the very best. So, we developed a very complex and sophisticated quality screening process, which allows us to identify on a very objective scale who are good coder, who best coder, and who are very best coders and we only focus on the very best one and in the end we only accept the top 5% of all tech in our community.

So, think about our community like a place where there are excellent software developer, data scientists, AI designer, technical product manager, technical product owner, scrum master, so basically all kinds of people you need to realize complex IT project. And our mission at ExpertLead is to enable the world’s best tech freelancer to become even better. So as mentioned we gather outstanding talent into our community and we give them the opportunity to get even better. So, the idea is good guys together in one community, learn from each other and get even better. So, we established lots of knowledge exchange mechanism within our community with offline events with online events. We have peer to peer knowledge exchange sessions to really make sure that knowledge gets transferred within the community. And at the same time, also mentioned earlier companies can get access to this highly qualified pool of IT individuals in which the freelancers again further get — further experience to get better and what they are currently doing.

The very important thing to note upfront what ExpertLead is that we are not another top platform, it’s not like people come to us to find a new job or a new project. We are much more of what we are. So, what we are is, the two lines that you see here on the one hand our main focus is to serve this community of IT experts and on the other hand to serve our clients to really find and assess the right techies that they need for their own individual IT project.

So, what does that mean in more detail, starting with the community, so, as you can see on this slide, we have let’s say highest dimensions that define our community. So, number one is to peer to peer quality review, so we leverage the knowledge of our community to accept new applicants into the community, so, even if someone wants to enter and say software developer, need to do certain exercises coding, challenges, personality screening and also peer to peer operations with a life coding exercise with someone of the community. So that in the end everyone, who is part of the community is really outstanding in what is doing.

So, other community members have to guarantee, whenever they exchange knowledge or they collaborate with someone within the community, they are actually operating with one of the very best.

The second dimension is related to content. So we know that these tech guys they love to coach, but they hate to do attendance, they hate to do customer acquisition, they hate to do invoicing, they hate to do conflict settings, so this is all taken care from ExpertLead side and all community members don’t need to have to live with that and can fully focus on coding.

Thirdly, all freelancers in our community only get better customer project that — nice situation with — always more companies, who need good freelancers up then, good freelancer that are available, so we can really only select the very best, the most interesting, the most challenging project to all our community member.

Fourthly, we have an ecosystem of relevant freelancers, so it’s basically everyone who is part of our community get access to let’s say freelance and supporting services. For instance, discounts on freelancer insurances, preferred access to freelance the bank account, discount or freelance [indiscernible] and the like. And then, last but not least, we know, freelancers are hard working and we make sure that they always get the payment on time. We don’t make any compromises here and we take care of the whole billing and stresses the part that freelancers get paid on time always without compromise.

Looking on the client side, as mentioned we also put lots of emphasis on really helping companies on an individual scope. So, we not only find the right tech people for the companies, but we assess them as well. So, companies who work with our freelancers can only look at the person to fit because they know all the candidates coming from all community have a very high technical fit because they passed a thorough quality screening process upfront. So, companies get on the one hand access to our community. On the second that I mentioned they actually know that everyone is quality tested and belongs to the very best in their respective fields. They get certainly access to our community members in a very fast way. So, normally we’re able to match freelancers and companies in less than 48 hours.

Of course, big corporates like to have dedicated counterpart and they find it within our company. And of course, in the end here also we take care of all document parts that the company has a very hassle free process or set up. We do contracting. We do invoicing and companies can just focus on working with this [Technical Difficulty] to deliver their IT complex projects.

Why is the full market so interesting for us? You can see on that slide, so there’s a significant change in the whole workforce demographics happening, right. So, especially the tech talent is moving into employment into freelancing. Taking a snapshot of the U.S. workforce in 2017 shows that a quarter of the U.S. workforce worked on freelance basis. And it’s actually estimated that in eight years, so by 2027, the majority of workforce will comprise of freelancers. And of course, some companies and some markets are always a little bit faster than others.

But, if you look at Google for instance, early adopters of new trends. They already announced last year that they had to more freelancers than full time on the payroll. So, it’s not like there’s a small group of individuals who are doing freelancing. There’s actually a massive change in the whole workforce demographic happening and we want to be the ones that position ourself early enough to be the go to place for freelancers going forward.

So, with ever increasing amount of freelancers and also the increasing complexity of IT, the quality screening becomes very important. And as I mentioned at the beginning, we have developed a process to really identify on an objective and scalable way, who is good, not good and very good. And the top 5% make it into our community. And this quality screening process includes a couple of steps.

First step is an experience and competitive screening where we check, do the people in our community can — communicate, where do they speak the languages that they have on the CV? Are they able to work efficiently in teams and this kind of activity.

Second of all, we do coding assignments. So, basically everyone wants to be part of the community needs to do a three-hour homework assignment where we can see on the objective way if the code where written, is it smartly written, is it well-documented, is it efficiently coded? We can test that automatically. And then, this people who pass the gates, come in to the technical appear to peer interview, where people from our community do a life coding exercise with the new applicants. So, in this session, we really evaluate two things, number one is, that this person really do the home assignment on his own or did he got help or did he get some copy paste code snippet and by asking the right questions to find that out easily.

And secondly, we assess how someone thinks strategically about codes. So, if someone experienced enough to not only have one coding solution, but if someone able to provide multiple coding solutions to a given project.

And then, last but not least, what was part of our community not that we have continued quality assessment, so every freelancer who does a project with a client gets a rating after the project and only the very best ones with the highest ratings are allowed to stay within the community.

So, through all these steps, we can really guarantee that we only have the top 5% of the individual applicants in our network. And it’s not a marketing slogan, [indiscernible] 3% or 4% of people who pass quarterly.

So, as mentioned earlier, the community is only focused on techs who have software developers and all programming languages and all frameworks. We have data scientists, technical project manager, product owners, drivex designer, and maybe one additional thing, I did mention is the beta that we are currently running at on the vertical of penetration testing private security. So, basically we have very soon freelancer that hack into a company’s security mechanisms and find loopholes. And then, of course, in the end talk to the companies and address to fix these reports.

And I think so far, as you can see on this chart is a whole community growth activities have been quite successful. Our community is growing constantly. We are a young company. We started in January 2018, but the community numbers are growing quite fast, 73% quarter-on-quarter, the same on the delivered project volume. So, in total even though we’re just operating since one year nine months, we delivered more than €5 million project volume also growing constantly currently with 59% quarter-on-quarter.

And I think at least for me as the Managing Director of this company, yes, growth is of course important, but especially for young companies, it’s much more important thing currently is that the customer that we have are very satisfied with our services because these other guys who bring additional customers in the future. And what we can see from the selective customer, this is going to charge is that our quality screening really works. The constant feedback we get is that a lot of freelancers are extremely good in what they’re doing and hence our customers are coming back very often as you can see on the top right corner.

We are a young company and projects last between three and six months. So, even though, we’re just operating one year nine months customers already come back three times on average. Keeping in mind that many customers are first time customers and the project has been running. We know that these numbers will go up because they never had the chance to get back. Yes. And what we think is really interesting and what we always proud of is that we have a very broad range of customers.

So, it’s completely industry and science agnostic because in the end everyone needs good ticket. So, we have corporates, we have SME clients, we have small scale ups, we also start ups, only one thing for start ups. I mean I’m running a startup myself and very often startups do not have the money to afford top 5%. But, if it’s the finest startups, also part of our target group. And in the end that’s completely industry and science agnostic, everyone who needs good techie can come to us and work with us.

Yes. That this — so, I think so far it has been a very interesting journey started in general with my friend and co-founder Ana with two guys, now we are around 50, by end of year would be 60 people. We have the feeling, it’s super exciting market and I think lots of future growth to come with our team and we are very much looking forward to achieve further growth together with Rocket and also two additional investors that joined our team recently. Yes, I think that’s it. Thank you very much. Any questions?

Unidentified Analyst

Can you talk about the competitive landscape because it seems like the company’s Honeypot, is that one of what you’d consider to be competition?

Alexander Schlomberg

No. Honeypot is focusing on full time employees, right, we are focusing on freelancers. So, freelancers come in on a project basis and the talent pool is completely different. And the choppiest team where the whole workforce demographic is changing to what could have been only on the contingency work space like freelancing project base work space. Honeypot is doing only timers.

Unidentified Analyst

And on the [indiscernible] investment, should we take that as an indication that you plan to go, I mean the customer base is primarily in Germany. Can they be a platform for you to expand internationally?

Alexander Schlomberg

Definitely, definitely. I mean when we did our [indiscernible] with two new investors, we had two [indiscernible] candidates and both [indiscernible] candidates came to the team. So, one strong growing dispute was all the background in tech and one international global strategist like seek who can help us in the future to realize the global potential that we have, right, because the cool thing about our community is, it is already global, right. Yes. It’s just that the customer are mainly in the [indiscernible]. But most of our projects are on a remote basis anyway, right. So, it doesn’t really matter when you write the code, if you sit next to each other or if you’re on other side of the planet. Hence internationalization for us will become pretty easy because we just need to find new customers in new country. But, we can leverage the same community because the community is already on a global scale.

Unidentified Analyst

Maybe following up on this, quite interesting comment, so international, what would you say to your share in terms of like employees, who are, you are referring on the platform coming from across India and China. How do you think this will actually develop because it’s my view obviously go far as that. The freelance market is very strong right now, but some there might be thought of very highly qualified people coming into the market in the next 10 years. And then, the demand — set-ups or other spaces, helicopter, [indiscernible] view.

Alexander Schlomberg

Yes. I can’t let’s say split of community members is mainly Europe, but with the increasing shelf Eastern European for instance, right. Because the number of freelancers will increase, but the need for the policy screening increases with the same rate, right. Yes, there are lots of very talented developers in Asia and in India, but with the increasing amount it gets more, more important to identify a few very good ones, right, that the companies would like to work with. That’s what we do day in day out. So, the cool thing with us is, people can get access to Indian developers, but they do not need to screen 40, 50 profiles themselves because we did it for them. The guys who are in our network are on an objective base. Top 5% and companies can direct you start working with them, while at the same time, of course, by taking advantage of much lower daily rates. But, the quality level is the same. So, that’s definitely our long-term strategy to increase the Eastern European and let’s say low cost countries, who will freelances much more, because the quality is the same, but the daily rates are much cheaper.

Unidentified Analyst

Thank you. Great presentation. Liked the idea and I hope you succeed. The questions would be, you focus on the top five i.e., the rock stars, right? To what extent does your business idea rest on the assumption that these guys will remain rock star i.e., coding will not get commoditized in the future. You know with all these platforms, when you can get snippets of code is feasible. I think there was an acquisition in the U.S. where exactly that was done like commoditized code. Will that diminish the value of your platform?

And secondly, assuming that it stays like this, how can you be sure that that –rock star, like the Neymar of coding? Yes, will stay on your platform and not hire a team of people actually getting him projects. What’s the advantage of outsourcing this to your platform? Thank you.

Alexander Schlomberg

Yes. So, starting with the first question. Yes. Code is getting commoditized. It’s easier to do let’s say building blocks of codes and less and less human interaction required for standard code snippets, right. So, basic things.

The things we work on are very complex things, right. They’re all individual software solutions with the corporate. They are not such things as — I can copy paste certain elements from a different project and reuse everything in my new project. Everything is customized, tailor-made and the more complex, the certain IT project gets, the less you can reuse this building blocks that you mentioned, right.

So, we see, clearly a disadvantage for companies that do not do quality screening, aren’t companies that does test matching like for instance, there are lots of other providers, right, that would have quality screening. And they would get a big problem from this commoditized code snippet, also the 95% of the other code people in our community have much higher risk of being obsolete, right because they can’t do it. It’s very complex things that the top 5% can, right. And if anyone is building the building blocks, it is the top 5% who is building them. So, we don’t see any risk of this having an impact on our community.

And the second question, the Neymar of code that you’ve set, yes, the select coders, why do they like working with us and do not do these activities themselves? First of all, they — does more than just getting projects from us, right. So, that’s the whole idea behind the community right. That’s the whole topic about knowledge exchange and being part of the lead community, right.

Getting project is one channel and to be honest everyone in our community doesn’t have problems getting projects. So, if they want they can continue with their old client. They can always work on previous projects because the customers love them, right, it has worked. The main motivation to be part of our community, right.

So, yes, they have to — additional channels to get more choice in the projects, which is cool, which is relevant for this guy. But the bigger the bunch actually comes from being part of the community and learning from others were also excellent to become even better. And I think your example fits perfectly well. So, I think Neymar alone on a soccer pitch doesn’t have any value, he need 10 additional player to be successful indeed. Now, community people will find additional players to train together and get even better and be part of this elite networking.

Okay, great. Oh, one more question perhaps.

Unidentified Analyst

[indiscernible]

Alexander Schlomberg

Exactly. It’s all commission based. It’s high. I mean in peer segment numbers are confidential. I wouldn’t like to share them, but it’s very high. So, it’s 25% and up depending on the project duration, the project length, the project complexity and the number of people involved.

Alexander Schlomberg

Okay. I think we have got no further questions. We are done. Thanks for listening.

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