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Jumia Shares Plunges 82% on NYSE, Raises Questions About Foreign Listing for African Start-Ups

“On the first day of trading, Jumia’s share price settled at $14.5. However, four and a half years later, Jumia’s shares are trading at $2.64 on the NYSE, with the company reporting a fourth straight year of operating loss in 2022”. 

In April 2019 when Jumia launched its IPO, it was a historic moment. Being the first African tech startup to trade on the New York Stock Exchange was a big step for the company vying to become Africa’s Amazon. It raised $196 million in its IPO, offering 13.5 million shares and opening at $18.95 per share.

On the first day of trading, Jumia’s share price settled at $14.5. However, four and a half years later, Jumia’s shares are trading at $2.64 on the NYSE, with the company reporting a fourth straight year of operating loss in 2022. 

Also Read: Jumia’s New Technology Center Launches In Egypt

In its FY 2022 report, Jumia recorded an operating loss of $227.1 million, a slight improvement from the $240.9 million operating loss recorded in FY 2021. An overview of the company’s 2022 financial report shows that the company was projecting an EBITDA loss of between $100 million to $120 million in FY 2023.

Like Jumua Like SWVL

Swvl, another African firm, has an interesting tale to tell in the journey to going public. The tech company, which provides mass-transit services, started in Cairo, Egypt in 2017 but is currently headquartered in Dubai. It started out with a lot of promise, raising $8 million in its Series A funding, between $25-$35 million in its Series B funding, and another $42 million in funding in 2019. 

Swvl went public in 2021, after four years of existence in a special merger deal with a  special-purpose acquisition company, Queen’s Gambit Growth Capital. Essentially, this deal gave Swvl a valuation of $1.5 billion, with the company trading on the Nasdaq without having to go through the hassles of an IPO. Two years down the line, Swvl has lost 99% of its valuation, as the company is now valued at $5 million, and facing the risk of being delisted from Nasdaq. 

Swvl’s latest financial report shows that in H1 2022, the company made a revenue of $40.7 million and recorded total losses of $161.6 million. The company which currently operates in  Egypt, Kenya, the United Arab Emirates, the Kingdom of Saudi Arabia, Jordan, Malaysia, Spain, Argentina, Chile, Germany, and Turkey has had to lay off over half of its workforce since it went public in 2021. 

Misunderstanding of African Markets 

The challenges faced by these companies have raised doubts about the feasibility of African startups going public in foreign markets. At the moment, there are five tech companies with a unicorn status in Nigeria; Jumia and Interswitch are the only ones that have gone public. 

Eunice Ajim, the Founding Partner at Ajim Capital, a tech-focused African venture capital fund shared her thoughts on the subject on X, the company formerly known as Twitter,

“Should African startups IPO in the US or their local markets? We all saw what happened to Jumia and Swivel. Here are my thoughts on what lies ahead for Africa’s future IPOs in markets like Nigeria and South Africa:

“The main reason African startups consider US IPOs is access to a larger pool of capital. This was never a bad decision, as it allows access to a larger pool of investors and a higher level of liquidity.

“But, the performance of Jumia and Swivel could make African firms consider listing at home instead. The issues with their IPOs weren’t necessarily the fault of the firms. Instead, it was a perfect storm of several factors that were out of their control, including short-seller attacks, accusations of fraud, and misunderstanding of African markets.

Also Read: Jumia: From Laughing Stock to $100 Per Share

She highlighted that it is better for African startups to list at home, 

“I believe African startups should focus on their local markets for IPOs. This will ensure regulatory compliance and minimize geopolitical risks. Furthermore, it will encourage more local investment, retaining wealth in Africa.”

The experienced investor suggested having a stock exchange for African startups that will allow trading with little risk as a way of incentivizing local investment and thus overcoming the problem of the lack of liquidity in African markets. She also encouraged African start-ups to have dual listings as a way of having access to global investors while “maintaining a local presence”. 

Start-Ups in India,Korea, South Africa List Locally 

In line with Eunice’s thoughts, Jason Njoku, the founder of iROKOtv, another Nigerian-founded company that sought to go public, noted, 

“A big structural issue for Nigerian startups is the reporting revenues in $. Unsure how you back out of it. But reporting in non-local currency is essentially hustling backwards.”

According to Njoku, “almost all the largest start ups” in India, South Korea, Japan, South Africa and other emerging markets list locally and report earnings and profits in local currencies. 

Challenges of African Startups Going Public at Home

African startups seeking to go public are usually challenged with a critical issue of capital, just like Eunice pointed out. In Nigeria, for example, there are five companies with a valuation of ~>$1 billion, the largest being Flutterwave. Flutterwave after its last funding raising round was valued at ~$3 billion. In contrast, the entire market capitalization of the Nigeria Stock Exchange is about N36.8 trillion (~$49 billion). In fact, there are presently only seven companies with a market cap above $1 billion on the NGX. 

How much Flutterwave aims to raise in its IPO remains undisclosed. Nevertheless, given the company’s present valuation, it would potentially go for about $3 billion. This figure represents roughly 6% of NGX’s total market capitalization. Investors on the NGX are unlikely to stake this level of capital in a company whose assets and liabilities they are not very familiar with. Jumia also operates in a sector which they poorly understand and are likely to perceive as high-risk. For these reasons, the San Francisco-based company is not likely to seek to go public on the Nigerian stock exchange. 

Start-Up Solutions on the NGX

African securities markets are responsiding to the challenges that African start-ups face in foreign stock exchanges. For example, the Nigeria Stock Exchange launched the NGX Technology Board to enhance startup listings. The NGX also initiated a Growth Board 

in 2021“to enable companies with small market capitalisation, good corporate governance structure and potential for growth to list on the NGX

The Growth Board has two listing sections: the Entry Segment and the Standard Segment. For the Entry Segment, applying companies need to pay an application fee of N250,000 and a listing fee of N200,000. In the Standard Segment, the application fee is 0.1% of the offer size. 

Also Read: Jumia’s FY20 Report Shows Gradual Move Towards Profitability

Analysts are of the opinions that the NGX needs to do much more to promote the Technology and the Growth Boards. Investor education on the nature and potential of the tech sector is vital as exposure to the fundamentals of the listed tech firms. Ultimately, it is success  stories, specifically robust revenue growth and healthy returns to investors that will convince Nigerian and African investors to stake funds in tech start ups.   

 What will be the impact on the tech sector? 

David Olujinmi

David Olujinmi studies Engineering but his true passion is research and analysis. He writes about finance, particularly the capital market, investment banking, and asset management. More »

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