What happened

Shares of Jumia Technologies (JMIA 8.83%) were taking a dive today after the African e-commerce leader posted its second-quarter earnings report. 

Though Jumia showed off solid growth in the quarter, investor attention focused on the company's expanding range of investigations concerning internal fraud among its sales force and accusations of faulty accounting and misstatements in its April initial public offering (IPO) that have led to class action lawsuits. 

Jumia shares were trading down 17.4% as of 3:53 p.m. EDT.

A Jumia delivery man on a motorcycle.

Image source: Jumia Technologies.

So what

Concerns about underhanded accounting practices first sprang up in May when Citron Research, a noted short-seller, published a report accusing the company of fraud. Specifically, Citron said Jumia fudged figures in the IPO, which included inflating the number of active customers and merchants on its platform.

Jumia shares fell 19% on May 9, the day the report came out, and have slumped over the last two months as the market seems to be giving up on the stock.

Today's report sparked another round of fraud-related concerns. The company said, as it had previously disclosed in its IPO, that it was investigating members of the JForce sales team that may have engaged in improper sales practices. In an update on that review, the company said it found that those improper transactions amounted to about 1% of gross merchandise volume (GMV) in 2018 and the first quarter of 2019. The company said it terminated all employees and sales associates involved with the scandal. 

Separately, Jumia found an issue with improper orders being placed, and that amounted to 2% of GMV in 2018 and 4% of GMV in the first quarter. The company said it had suspended employees involved in those transactions and is continuing its investigation into the matter.

Finally, Jumia said that several class action lawsuits were filed regarding misstatements and omissions in its IPO. Those actions are in their preliminary stages. Unlike some companies have done in such instances, Jumia didn't defend itself or dismiss the validity of these accusations.

Now what

As for the second quarter, Jumia showed off another round of impressive growth as revenue rose 58.3%, to 39.2 million euros, and GMV jumped 69%. However, those numbers don't matter if investors don't believe them.

Jumia clearly has a credibility problem at this point, and until it completes its own internal investigations and resolves the lawsuits that were recently filed, the company's stock is likely to remain mired in the low teens, where it is today. While Jumia may have an appealing long-term growth opportunity in front of it, nothing makes a stock untouchable faster than the stench of fraud.