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Here's Why Jumia Technologies Stock Fell 13% After Earnings

By Jason Hall - Feb 25, 2020 at 3:02PM

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Continued cash burn and slowing growth after exiting some markets has investors selling today.

What happened

Shares of Jumia Technologies (JMIA 1.72%) are down 13.2% at 1:05 p.m. EST on Feb. 25, following the release of the company's fourth-quarter results after hours yesterday. The e-commerce company, which operates in Africa, listed some positives, including higher gross profits and accelerated use of its online payment platform JumiaPay, but continued losses and slowing growth after exiting three markets late last year. 

With today's sell-off, Jumia's stock is now at an all-time low, 81% below its 2019 IPO price. 

Chart on a computer screen

Image source: Getty Images.

So what

Jumia reported revenue of 49.3 million euros in the fourth quarter, up 14% from last year, versus 19% revenue growth in the third quarter. Revenue in the Jumia marketplace continues to grow quickly, up 50% year over year, but this metric is also showing decelerated growth. Total revenue and marketplace revenue increased 24% and 70% respectively for the full year. 

In addition to the slowing of its growth rate, Jumia also continues to report big losses and consume cash. This is common for many newly public growth stocks, which often use the capital from their IPO to aggressively spend to capture market share and grow. 

The concern with Jumia is that it's not cutting its losses quickly enough, and could run out of cash before it gets to profitability. The company's operating loss was 61.1 million euros in the fourth quarter, 15% higher than the 2018 quarter, and it lost 51 million euros in operating cash, a 17-million-euro increase year over year. 

Now what

Jumia finished the year with 232 million euros in cash and equivalents, good for about a year's losses at last quarter's burn rate (it consumed about 59 million euros in the fourth quarter). However, the expectation is that the company will start reducing its cash burn in coming quarters, as management works to optimize the business for more profitable growth going forward. 

Jumia exited operations in three African countries in the fourth quarter in an effort to reduce costs and focus on the markets with the best growth prospects. This move added about 2.2 million euros in restructuring general and administrative expenses, but even when adjusting for the one-off costs to cut staff and close locations, expenses still increased sequentially, faster than operating cash was coming in. 

I still think Jumia could become a major presence in Africa and a winning investment, and investors looking for a good entry point should consider buying at this price. 

That said, it's definitely time for management to start demonstrating that they're serious about getting costs under control and moving toward profitability. Until we see signs that there's a material improvement in the operating results, Jumia is firmly in the high-risk bucket. Invest accordingly. 

Jason Hall owns shares of Jumia Technologies AG-ADR. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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