By Mia Shanley
STOCKHOLM (Reuters) - Swedish-American heiress Cristina Stenbeck's bet on the red-hot e-commerce business has caught the eye of investors, although doubters question the future of her Kinnevik group in a sector where new players emerge almost every day.
Shares in Kinnevik, which Stenbeck inherited at 24 on the sudden death of her father Jan, have more than doubled in half a dozen years and outstripped some of Sweden's other renowned family investment firms under her leadership.
Yet some critics regard Kinnevik's investment shift into online retailing where entry barriers are low as foolhardy. They question the team Stenbeck has built, saying that while it is strong on banking and financial experience, it lacks the operational ability to build long-lasting web businesses.
In its nearly 80-year history, Kinnevik has made a habit of leaping from one growth sector to the next.
Jan Stenbeck had already transformed what was once an industrial group into a telecoms and media giant when he died in 2002. Cristina, who is now executive chairwoman, eventually made her own strategic shift and steered the family firm into digital businesses.
"For us it was absolutely the next big thing," Stenbeck, 36, told Reuters in an interview at her London office. "It was a continuation of what we were doing in mobile telecommunications."
This turning point came about six years ago when German entrepreneur Oliver Samwer made his way to Sweden to ask Kinnevik for cash for his venture Rocket Internet.
With a roll of the dice, Stenbeck and the board backed Samwer and his brothers - Marc and Alexander - investing 35 million euros (now $48 million) in their start-up selling everything from stilettos to furniture online.
That meeting took place at a manor house owned by Korsnas, Kinnevik's old pulp and paper firm. This was to become part of the group's history following the move into the online business, where Forrester Research forecasts overall retail sales will grow 12 percent annually up to 2018.
"It came up rather suddenly and we all agreed that we should join forces with the Samwer brothers," said Vigo Carlund, a Kinnevik board member present when Samwer gave his pitch. "Kinnevik has always been very entrepreneurial."
Today one of Rocket Internet's start-ups, Zalando, is Europe's biggest online fashion retailer and perhaps Kinnevik's most important asset. "We had a very big conviction around Zalando and what that company could possibly take for European market share," said Stenbeck.
Both Internet incubator Rocket and Zalando may go for multi-billion dollar stock market listings this year.
Stenbeck, the third generation of the family to run Kinnevik, has built up the group's online investments from nothing to a third of its portfolio.
Her push mirrors Jan's bold move into television and telecoms, when he created what is today broadcaster MTG and operators Tele2 and Millicom, breaking state monopolies along the way.
Some believe Kinnevik, which has produced an average effective yield of 17 percent for shareholders in the last 30 years, is in better shape than when Jan ran the group. Its net asset value has tripled since 2009 to 66.2 billion crowns ($10 billion) and it has a net cash position of 2 billion crowns.
Kinnevik's investments include Russia's biggest classifieds website Avito, furnishings site Home24 and Wimdu, which is similar to the private holiday accommodation site Airbnb. The online portfolio is second to telecoms and financial services, which make up 57 percent of the total.
Stenbeck has said the telecoms sector is under threat from the already high levels of people using its services - offering lower potential growth - along with reduced tariffs and rising business costs. In a sign of change, she stepped down last year from the boards of both Tele2 and MTG.
In February, she became supervisory board chairwoman at Zalando, which sells more than 1,500 brands to Europe's online fashionistas and posted a 35 percent increase in revenue in the first quarter. The firm is considering a listing which could value it at as much at $9 billion, according to some analysts.
However, Zalando is not yet profitable and just this month, its biggest rival ASOSissued a profit warning, stunning markets and sending shares in ASOS and Kinnevik sliding.
Zalando had 1.8 billion euros in revenues last year compared with just short of one billion for ASOS in its fiscal year. But it had a negative margin of 6.5 percent compared with a positive 7.1 percent for ASOS.
Kinnevik's new CEO, Lorenzo Grabau, said operating losses are the name of the game when building a major business. He believes Zalando is on track to profitability, drawing parallels to Amazon, the world's largest online retailer.
"When you study the Amazon history between 1997 and 2003 and look at Zalando in terms of profitability, it's kind of the same," said Grabau. "It took ASOS 14-15 years to get to a company which is 60-70 percent the size of Zalando. Zalando got there in five years."
Danske Bank analyst Bile Daar said it was hard to know about long-term profitability given how young e-commerce is. "But will the Internet continue to grow in the coming 10 years? It seems so, and scale should over time bring profitability," he said.
Kinnevik is among a long list of Swedish family firms from the Wallenberg-backed Investor Group to the Kamprads who run IKEA which are having to think up new strategies to keep up in a fast-changing world.
Kinnevik's stock price has risen 155 percent since the global financial crisis year of 2009 as funds have jumped in to gain exposure to Europe's tech sector. Shares in Investor group have risen 90 percent in the same period.
Grabau is quick to distinguish Kinnevik from Investor or fellow Swedish family firm Ratos, which he sees more as asset managers. "We are about building new brands - building digital brands around the world," he said.
Many like the formula. Edinburgh-based investment management firm Baillie & Gifford announced in the past week it had raised its stake in Kinnevik to over 5 percent of capital. Investment vehicle Verdere, co-owned by Cristina and her brother Max, is Kinnevik's biggest shareholder with 10.6 percent of capital and 44.8 percent of votes.
TOO MANY BANKERS?
Kinnevik is not without its critics and its shares have lost 10 percent this year. This is due to worries about political fallout in Russia where it is exposed, the state of its ageing telecoms assets and signs of slowing new user traffic even at Zalando as it focuses on profitability rather than expansion.
Bankers say parts or all of Tele2 may be for sale due to the sector's slow growth prospects and setbacks for the firm, such as its recent failure to secure a 4G network license in Norway.
Unlike her father, who built companies from the ground up, many say Stenbeck lacks operational experience and has made risky bets on companies which are far from profitable.
She has surrounded herself by what some say is an astonishing number of bankers. Grabau, Kinnevik's new investment director and Rocket Internet's recently hired CFO are all former Goldman Sachs bankers.
Such bankers know how to handle the financials, said Anders Elgemyr, CEO of Birger Jarl Fondkommission, a Swedish brokerage. "But when it's going badly, it's going to be very bad, because they don't know how to turn around the company from the ground level, because they don't know how the industry really works."
Those close to Stenbeck say she works hard to build strong boards for each of Kinnevik's assets. She got Anders Holch Povlsen, owner of Denmark's Bestseller and the biggest shareholder in ASOS, to take a 10 percent stake in Zalando with a seat on the board.
"I learn so much from Bestseller. Anders, with a very early and deep understanding of the significant shift to e-commerce in his own business, and his belief and confidence in Zalando has been incredibly valuable," she said.
Perhaps the great concern is that just like many of Kinnevik's fledgling businesses, anyone can start an online business and steal market share.
Carlund, who has worked with the group for five decades and is partly responsible for closing Kinnevik's industrial chapter which he was so closely tied to, is confident.
"Most ideas are not original, you know," he said. "Toyota didn't start cars, H&M did not start the clothing business, and neither did Zara. There aren't many ideas - it's the way that you execute on the ideas that makes a difference... A lot of people can make a hamburger, but there are few McDonald's."($1 = 0.7336 Euros)
($1 = 6.6883 Swedish crowns)
(Additional reporting by Niklas Pollard, Olof Swahnberg and Sven Nordenstam; Editing by Alistair Scrutton and David Stamp)