People & Money

Jumia: From Laughing Stock to $100 Per Share

Jumia’s comeback has now been sealed in a survey by financial media outlet Benzinga, which has the majority of over 500 traders and investors surveyed saying they expect the shares of the company, trading on the NYSE as JMIA, to reach $100 by 2022. 

Jumia Technologies, the pan African e-commerce firm debuted on the New York Stock Exchange on April 12, 2019, with its stock priced at $14.50, valuing the company at $1.1 billion. It quickly became a laughing stock after its historic listing as the first African technology firm on a western bourse. 

By August 2019, the price of the stock had tumbled to $2.15 with its market capitalisation at the time estimated at a few hundred million dollars. There were allegations that the company had fraudulently included false information (such as using phantom orders to generate about $17.5 million worth of fake gross merchandise value between Q4 2018 and Q2 2019) in its prospectus to boost its valuation.

Then from around March 2020 things started to look up for Jumia. The new coronavirus pandemic has proven a tide that lifts all e-commerce boats, coinciding with the start-up’s concerted effort to reconfigure its operations. Its stock has risen by more than 500% in the last 13 months; it recently traded at over $59 with market capitalisation rising to nearly $5 billion dollars.

Jumia’s comeback has now been sealed in a survey by financial media outlet Benzinga, which has the majority of over 500 traders and investors surveyed saying they expect the shares of the company, trading on the NYSE as JMIA, to reach $100 by 2022. The bullish stance held by 74% of the respondents marks a significant change in outlook for the company, which was dumped by its original owners – German VC firm Rocket Internet – less than a year after the public listing.

The Benzinga traders and investors believe shares of Jumia will continue to grow based on certain trends. First, there is an expectation that African consumers will have an increased desire to receive goods via e-commerce delivery services. There is also the belief that Africa is growing, and its infrastructure will improve as well. More so, Jumia is poised to be viewed first as a tech company – which would help boost investor sentiment of it and ultimately its share price – and second as an e-commerce service provider.

Jumia co-CEO Sacha Poignonnec, left, applauds as Jumia Nigeria CEO Juliet Anammah, center, rings a ceremonial bell when the company’s stock begins trading, on the floor of the New York Stock Exchange, Friday, April 12, 2019. Jumia is recognized as the first African tech startup company to be listed on the NYSE. (AP Photo/Richard Drew)

It is the same long-term perspective applied to the stock that Jumia’s new management is adopting to the business itself as it attempts to engineer a turnaround to become profitable while trying to achieve market penetration within Africa.

Jumia’s initial goal when it launched in 2012, though not voiced officially, was to become the “Amazon of Africa” and employed a similar strategy as the American e-commerce giant – trying to offer virtually everything so long consumers wanted to buy it.

The quest to become the leading e-commerce player on the continent saw the company acquire vast inventory across a diverse range of product categories, build warehouses, and look to drive online sales by offering consumers the promise of ease and convenience.

But the expansive and loss-making first-party marketplace model has not paid off – the African e-commerce platform remains unprofitable nine years after its launch – and attracted criticism after the company went public.

Also Read: Lift for E-Commerce Firm Jumia as Andrew Left is Buying its Shares Again

Although common for hyper-growth companies to be unprofitable for years – for instance, Amazon took six years to turn a profit – Jumia’s business model was seen as spreading the company too thin and burning cash too quickly especially as it is based in a continent without adequate infrastructure needed to support e-commerce and with less than 1% of e-commerce penetration – compared to 12% in the U.S. and 20% in China.

Future growth prospects

Jumia Technologies has over the past year transformed its operations to focus on profitability. It exited three underperforming countries  – Rwanda, Tanzania, and Cameroon – and its travel business, and rather than sell more products itself in the costly first-party model, the company is now trying to enable third-party e-commerce

As of last November, active third-party sellers were estimated at 110,000 and covered 90% of the items on the platform, according to a presentation laying out the company’s turnaround efforts and plans for future growth.

Jumia also plans to carve out its fintech platform – JumiaPay – and Logistics arm into standalone businesses, based on a long-term goal to “maximize value creation potential of each asset.”

The logistics unit powers its e-commerce platform, consisting of a network of over 300 courier partners. It also includes proprietary technology for tracking optimal delivery routes, inventory, payments, over 110,000 square meters of warehouse space across Africa, and a vast network of drop-off and pick-up stations, offering the company a wider offline presence.

Logistics is seen as a critical competitive barrier for competitors in a region ridden with logistical challenges – from bad roads to congested cities with limited addressing systems. Trying to seize this opportunity, Jumia has opened up the unit to 3rd party suppliers across 11 African countries, helping to add volumes and negotiate better pricing on shipping and control costs.

“The focus is on reducing losses and controlling costs, and deciding where to allocate our resources,” Co-Chief Executive Officer, Sacha Poignonnec said at the time. “No one questions the relevance of e-commerce as a business – and the opportunity in Africa is massive. Now the only question remains on profitability.”

With greater potential is JumiaPay, a key asset through which about 34% of the company’s transactions are completed. E-commerce is a strong driver of online payment adoption as seen in the cases of eBay & Paypal, MercadoLibre with Mercado Pago, as well as Alibaba Group & AliPay. 

Also Read: MTN Sells Stakes in Jumia

Spinning off JumiaPay will be “a win” for Jumia, argues Professor Ndubisi Ekekwe, an entrepreneur and Harvard Business Review writer, as fintech holds more opportunity for profitability. In the first nine months of 2020, JumiaPay revenue was up 74% year-over-year.

“It can help it (Jumia) get more value,” he wrote on LinkedIn after news of the spin-off broke. “Think of how PayPal ($125 billion market cap) has become bigger than eBay ($33 billion market cap). I can tell you that JumiaPay will be bigger than Jumia in Africa. Expect it to challenge Flutterwave, Opay, and other paytechs.”

After being termed a cautionary tale to many businesses with the BBC chronicling Jumia’s story with the phrase “fall from grace”, Jumia has halted its bad run and is currently trading at four times its IPO price. And with its leadership team making huge strides to build a solid e-commerce business in Africa, the signs are good for the supposed “Amazon of Africa.”

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