COVID-19 has started to spread in Africa, and governments on the continent are taking proactive steps to slow the coronavirus pandemic by instituting strict social distancing measures. This creates an opportunity for Jumia Technologies (NYSE:JMIA) which is moving to bring African commerce to the internet.
In the 2019 fourth quarter earnings call, CEO Sacha Poignonnec guided for some disruption due to the virus's effect on Jumia's supply chains in China. But as China comes back online and the virus spread to other parts of the world, Jumia may be poised for a better-than-expected quarter as social distancing policies boost demand for its e-commerce services.
E-commerce demand is soaring
In the United States, e-commerce giant Amazon.com (NASDAQ:AMZN) has seen a surge in first-quarter demand. This is because more customers are opting to buy goods online to avoid face-to-face interactions amid the coronavirus pandemic. There has also been an increase in panic buying as customers look to stock up on essentials to prepare for potential government-mandated lockdowns.
These fundamental tailwinds may have caused Amazon stock to outperform the wider market amid the broader equity downturn.
Amazon stock is up around 3% year to date compared to a roughly 21% decline in the S&P 500. Jumia, which also stands to benefit from coronavirus-driven e-commerce demand, has seen its stock decline 54% year to date. And the sell-off may be overdone because Jumia benefits from many of the same factors that are boosting Amazon.
Jumia is positioning itself to fill a gap in the market
Several African governments have instituted strict lockdowns to slow the spread of coronavirus on the continent. This includes South Africa, which recently entered a strict three-week lockdown, and Nigeria, Jumia's largest market, which has restricted movement in its commercial capital, Lagos. Smaller countries like Kenya and Ghana are also implementing similar policies.
These lockdowns make it harder for people to get items they need, and Jumia is quickly positioning itself to fill the gap in the market. The company has reworked its branding in Africa with a new slogan -- "Stay safe. Keep your distance" -- that touts its role as a facilitator of social distancing. It has also rolled out "contactless" delivery to allow consumers to have items delivered without cash exchange or contact with the driver. This is made possible by the company's payment processor, JumiaPay.
Jumia is trying to meet increased demands for face masks and other medical supplies through a partnership with Reckitt Benckiser, an international health product manufacturer. Benckiser will finance free shipping on several products, including anti-bacterial soaps, and Jumia, in turn, will be taking 0% commissions on some high-demand products.
Expect Jumia's strategies to lead to a boost in marketplace revenue, a segment that grew 50% -- from 17.3 million to 26 million euros -- in the fourth quarter. But despite these tailwinds, the company is still a long way away from profitability.
Despite Jumia's top-line growth (total revenue grew 14% in the fourth quarter, from 43.28 million euros to 49.28 million euros), the company has a negative EBITDA (earnings before interest, taxes, depreciation, and amortization) margin. This means a potential coronavirus-driven boost to revenue won't necessarily translate to a boost in cash flow or net income.
Jumia posted an adjusted EBITDA loss of 51.2 million euros in the fourth quarter, which is 5% up from its 48.6-million-euro loss in the same period last year. Jumia also has a rapidly depleting runway, with only 232 million euros in cash and equivalents on its balance sheet at the end of the full year 2019.
The company will probably need to raise capital at some point during 2020, and this could lead to dilution for current shareholders.
The coronavirus pandemic is an opportunity for Jumia
The global coronavirus pandemic is a human and economic catastrophe. But it has created an opportunity for Jumia to fill a much-needed gap in the market by leveraging its e-commerce platform to deliver much-needed essentials like food and hygiene items.
Jumia has quickly repositioned itself as a facilitator of social distancing and a key player in the fight against coronavirus in Africa. These factors may lead to better-than-expected results in the first half of 2020. But investors should keep an eye on Jumia's margins and cash position because its runway is dangerously short.